Why Asset Monetisation?

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What is Asset Monetisation?

Asset monetisation is the process of generating new revenue streams for the government and its agencies by revealing the commercial worth of underutilised or underused public assets. Any property controlled by a public entity, such as a road, an airport, a railroad, a station, a pipeline, a mobile tower, a transmission line, etc., can be considered a public asset, as can any undeveloped land.

Asset monetisation is a notion that refers to providing institutional investors or the private sector with access to public infrastructure through organised methods. Unlike “privatisation,” “monetization” refers to “structured relationships” with the private sector that are governed by predetermined legal frameworks.

Asset Monetization of You must have just heard of this phrase when Nirmala Sitharaman, India’s finance minister, introduced the National Monetization Pipeline a few days ago. The Indian government intends to sell off its assets, which are now worth at Rs. 6 lakh crores, over the course of the next four years.

According to the evaluation made at a high-level review meeting the central government has concluded agreements worth 96,000 crores, exceeding its asset monetization target of 88,000 crores for FY22, according to a source familiar with the situation.

Roads, electricity, and the coal and mineral mining industries were among the major contributors to the asset monetisation. The official who spoke on the condition of anonymity said that the Center has established an asset monetisation target of over 1.6 trillion for FY23, for which proposals from several ministries are in various stages of processing.

Nirmala Sitharaman, the finance minister, identified the asset monetisation plan as a key funding choice for developing new infrastructure assets in her union budget for FY22. The proposal called for a pipeline of assets totaling $6 trillion to be sold off over the course of four years, up until FY25. The government anticipates that the asset sale completed in FY22 would result in an additional $ 9 trillion in cumulative investments as the asset acquirers increase their debt and grow their businesses. An important component of the government’s economic recovery policy is the crowding in of private infrastructure projects.

The key investors who acquired assets in FY22 include CPP Investments, Ontario Teachers Pension Plan and Utilico Emerging Markets Trust Plc, said a second person, who also spoke on condition of anonymity. Emails sent to these investors on Tuesday evening remained unanswered at the time of publishing.

Three “toll-operate-transfer” bundles were put up for bid for 390 kilometres of road construction in FY22, according to the source. According to the source, this brought in 23,000 crores. Transmission and hydropower assets worth $9,500 crore have been monetized in the power industry. In the mining industry, 31 mineral blocks have been put up for auction, with an estimated annual monetisation value of roughly 18,700 crores in FY22. These have assisted states in obtaining the cash they need for major projects.

The asset monetisation initiative will be closely watched in FY23. India has a private debt to GDP ratio of around 56%, which is lower than in many other nations. Increased debt and equity investments in the infrastructure sector will be made possible by the asset sale programme. It will be carried out in close cooperation with the states. The Center is seeking the development of greenfield infrastructure projects totaling 111 trillion for which it needs to create resources. Long-term loans are frequently used to finance state-initiated initiatives with the goal of developing assets that meet local demand. To provide long-term financing for projects, the Center also established the National Bank for Financing Infrastructure and Development.

The total asset sale in FY22 could actually go upto ₹1 trillion when the final figures come, said the first person quoted above. Finance minister Nirmala Sitharaman chaired the meeting in which senior officials from finance and infrastructure ministries and NITI Aayog participated. There was no formal response to emails sent to the finance ministry and NITI Aayog on Tuesday evening seeking comments for the story.

How does the Government intend to monetize the Assets?

Before we continue, it is important to emphasise that the government is not selling its assets; rather, it is just leasing them out to generate income for a specified period of time.

Unlocking the value of investments in public sector assets is the major goal of this initiative in order to produce long-term patient capital that can be used for additional public investments, primarily in infrastructure projects.

The Indian government has already monetized assets, so this is nothing new to them. Don’t worry; we’ll provide you all the essential information so you may impart this knowledge to others as well.

What assets are the Government Monetising?

The road, rail, and electricity sectors are the primary three areas where the government is considering asset monetization.Others are urban real estate, telecom, natural gas pipelines, and power generation.

Pipeline for National Monetization

The National Monetization Pipeline (NMP), costing Rs 6 trillion, was announced by the Indian government on August 23 of 2021. This programme intends to provide as a road map for the asset monetisation of a number of brownfield infrastructure assets in a variety of industries, including transportation (roads, trains, aviation, electricity, oil and gas, and warehousing).

NMP is a centralised website that might serve as a land bank for all the properties that have been set up for use by private firms or strategic investors. Additionally, it will evaluate the potential worth of unutilized and underused government resources.

Over a four-year period, from FY22 to FY25, the NMP aims to collect Rs 6 trillion through the asset monetisation of the federal government. The Center will still be the legal owner of the assets, nevertheless. NMP focuses on underutilised, brownfield sites where investments have already been made.

The underutilised brownfield assets are found in industries including mining, electricity, highways, railroads, and airports. This endeavour is required to attract private funding that will be utilised to build infrastructure.

Roads (27%) are the sector that contributes the most to NMP, followed by railroads (25%), power (15%), oil and gas pipelines (8%), and communications (6%), according to an official communiqué.