A lot of hue and cry has evolved after the
present Union Government decided to monetize
some of the assets that the Government was holding with the interest of the
public involved in it. Ever since the present Government decided to monetize the assets that it was
finding it to bring in the revenue to it to run it’s show, the opposition with
Rahul Gandhi as the prime concern started raising alarms saying that the Government was
selling the public utilities and the holdings of the public to the private
enterprenuers.
The opposition left no stone unturned to
proclaim and decry that this Government was
selling everything to it’s nearest one’s, the dearest one’s and the contours.
One could ask it, is that so ?. No, not really is the answer as monetization does
not means at all as to what is being sold .Let as understand monetization first,
and then the mode to sell under monetization.
Monetisation-
What actually is it ?.
Public assets such as roads, airports, railways, power transmission lines, pipelines, shipping terminals, mobile towers and other land and building, financial assets are controlled by departments of central government, respective state governments and public sector units (PSUs). Globally, it is considered that public assets are a crucial resource for all economies.
Having understood it all, one really has to understand the difference between the monetization that takes place on the assets that the Government holds but that are actually for the public and the liquid assets that the Union Government holds under it’s belt at the R.B.I always.
Liquid Assets are the Gold, the currency and the
lands that the Government holds which are meant to be sold. Lands that are not
to be sold are the tangible assets in the hands of the Government which are
described as CASH IN HAND without really the cash in the hand. The cash comes
only when the land is sold but still even if the land stands still, and the
cash does not comes in the hand, the land is construed as CASH-IN-HAND
according to the law of the accountancy . Thus it is an asset of the Government
. That is it. We turn our mind to the
monestisation of the assets.
Asset monetisation
explained - ::
Asset monetisation is the process of creating
new sources of revenue for the government and its entities by unlocking the
economic value of unutilised or underutilised public assets. A public asset can
be any property owned by a public body, roads, airports, railways, stations,
pipelines, mobile towers, transmission lines, etc., or even land that remains
unutilised.
As a concept, asset monetisation implies offering public infrastructure to the institutional investors or private sector through structured mechanisms. Monetisation is different from ‘ privatization ’, in fact, it signifies ‘ structured partnerships ’ with the private sector under certain contractual frameworks.
Monetisation always creates a bond and a
business partnership between the Government and the private enterprenuers. This
cannot be rules out. One of the reason that we saw the opposition crying foul
over the monetization was due to the fact that the opposition led by Rahul
Gandhi started howling that the Government was selling all it’s assets to the
private sector but it was NOT.
What is the motive of monetization and one ought to understand that fully.
Motives
Of Asset Monetisation - ::
Asset monetisation has two important motives: Firstly, it unlocks value from the public investment in infrastructure, and secondly, it utilises productivity in the private sector. Asset monetisation aims to tap the private sector investment for new infrastructure creation.
" Asset monetisation does not involve the selling of land, but it is about monetising brownfield assets ", said India's Finance Minister Nirmala Sitharaman. What is brownfield one might ask. Well it is the infrastructure that the Government had created and had made it usable for anybody to use that, but as the Government is not in a position to use it, and the idle laying status of the assets are not creating any revenue at all, it becomes necessary for the Government to sell it in an manner so that the PROPRIETORSHIP of the asset remains with the Government for ever buy the business deal would be of the private enterprenuer till the Government takes it back under their fold. Here the business that would be generated would be done by the private enterprenuer and the Government would have it’s share in it but the proprietorship of the land as assets will remain of the Government. That actually is the idealism of asset monetization.
In India, the idea of asset monetisation was first suggested by a committee led by economist Vijay Kelkar in 2012 on the roadmap for fiscal consolidation.
The committee had recommended that the government should start monetisation to raise resources for further development and financing infrastructure needs.
National Monetisation Pipeline
The government of India announced the National
Monetisation Pipeline (NMP) worth Rs 6 trillion on August 23 in 2021. This scheme aims to serve as a roadmap
for the asset monetisation of several brownfield infrastructure assets across
sectors including roads, railways, aviation, power, oil and gas, and
warehousing.
NMP is a central portal that could act as a land bank housing information about all assets that have been lined up for utilisation by strategic investors or private sector companies. It will also assess the potential value of unused and underutilized government assets.
The NMP targets to raise Rs 6 trillion through asset monetisation of the central government, over a four-year period, from FY22 to FY25. However, the ownership of the assets will be retained by the Centre. NMP focuses on brownfield assets in which investments have already been made but are underutilised.
The underutilised brownfield assets are in sectors such as roads, railways, airports, mines, and power. This initiative is necessary for bringing in private capital which will be used for infra creation.
According to an official communique, the top five sectors in terms of contribution to NMP are roads (27%) followed by railways (25%), power (15%), oil and gas pipelines (8%), and telecom (6%).
Why Is There A Push For Asset Monetisation - ::
The question is what does the Government wish and wants to
earn from the leasing of the public assets like the airports , roads, coal
mines, and the hotels. Will these help
to raise and boost the economy.
August 23rd 2021 that way remains the historic day in terms of the
landmark for the Ministry of Finance of India and the Indian Government in
toto. She infact declared the NATIONAL MONETISATION PIPELINE ( NMP) which is
said according to her assessment and expectation that it would fetch the
Government around Rupees 5.96 lakhs of
crores of the revenue following the route of BUDGETTED PLAN FOR MONETISING
PUBLIC ASSETS to fund the fresh capital
expenditure on infrastructure , the Government released list of projects
and the facilities to be offered to the private investors over the next four years through a structured
process of leasing and securitasing the the transaction of the same.
Government to ease
path for asset monetisation
Finance Minister Nirmala Sitharaman, who has been
working efficiently for the above scheme, will soon chair a meeting of the Financial
Stability and Development Council (FSDC) to nudge financial regulators to relax
and harmonise investment norms for instruments like Infrastructure Investment
trusts (InvITs) to be used to monetise public assets like highways, gas
pipelines and railway tracks.
This infact will and would be the first step toward the
REVOLUTION OF ASSETS IN INDIA . We did have the GRREN REVOLUTION in 1967 and
the MONEY REVOLUTION would be
the second one in this country after a gap of 56 years. THIS
INFACT WOULD BE A GAME CHANGER AND IF SUCCESSFULLY PLANNED AND PHASED OUT, THIS
WILL TURN THE WHEEL OF THE REVENUE GENERATION FOR THE INDIAN GOVERNMENT. However Sincerity , transparency and honesty
with full devotion would be needed for the plan to be success by 100%.
With the economy still not out of the woods from the
COVID-19 pandemic and Ms. Sitharaman urging industry to look beyond banks and
tap the markets for their financing needs, steps to ease access and encourage
investments in the corporate bond market are also expected to be discussed by
the FSDC.
The
NITI Aayog, which has steered the NMP, has emphasised the importance of expanding
the investor base and scale of expanding the investors base and the scale of
expanding the investors base and the
scale of monetization instruement like Investment IT’s and the Real Investment
trust ( REIT ) and it has raised and also has flagged concers about the regulators taking varying
stances on such investments.
Variable measures that has been announced in the Union Budget as declared by the Union Government under the Ministry of Finance to allow and enable the InvITs and REITs to borrow money from the FPI’s and issue debts securities are also expected to be reviewed by the FSDC, along with the efficacies of the changes implemented by the individuals as the regulators.
SEBI,
for that matter , has recently reduced
the minimum investment amount for Inv IT’s and REIT to the tune of Rs ₹10,000-₹15,000
to enable retail to enable the retail investor’s to participate in this
phenomenan of the Government and the Pension Fund Regulatory and Development
Authority (PFRDA) as well as the Employees’ Provident Fund Organisation (EPFO)
have permitted investment upto 5% of their corpus fund in the Inv IT’s albeit
with onerous conditions.
Here
it has to be mentioned that every project would require an active participation from the investors looking at a similar
active profile from their investments. However , the existing investment
guidelines for insurance and the pensions in terms of the funds limits itself
to the InvIt’s/REIT assets.The NITI Aayog has flagged in its guidelines for the
NMP.
For
insurers, the Insurance Regulatory and Development Authority (IRDA) has allowed
an exposure to InvITs and REITs up to 3% of their own funds size or 5% of the
units issued by a single trust, whichever is lower. Mutual funds, regulated by
the stock market watchdog SEBI can invest upto say 10% of their assets in a
single InvIt’s/REIT.
“
These need to be streamlined to ensure consistency,” the Aayog has noted,
besides highlighting inconsistencies across categories on the level of
exposures “ For example: IRDA regulations do not permit investment of insurance
funds in unlisted InvITs. Hence, a staggered approach for streamlining of
investment and it’s guideline and limits is envisaged to keep pace with the
growth in the InvIT market starting with all the allocation of insurance and
pension towards unlisted InvIT’s as decried and said by the Government taking
the NITI Ayog as it’s principal.
IRDA
and PFRDA also mandate a high credit rating for InvITs to be eligible for their
long-term investments, and the credit enhancement mechanisms for boosting their
long-term investments, and the credit enhancement mechanisms for boosting the long-term
investments, and the credit enhancement mechanisms for boosting the usually
lower ratings of infrastructure projects may also figure in the FSDC’s
deliberations
A
Credit Enhancement Guarantee Corporation, announced in the Union Budget of
2019, is not yet operational, while a partial credit guarantee enhancement scheme
from the RBI has some limitations in its present form.
Restrictions
pertaining to investments in the overall corporate bond market are also likely to
be flagged at the FSDC, with Sebi recently mooting an urgent rethink from the Reserve
Bank of India, IRDA and PFRDA on norms constricting debt market exposures , in
order to enable a quicker recovery.
While
there are multiple players in the debt market, the number of participants in
each investor class remains limited due to such norms, constraining the pool of
liquidity available. The whole time
member of SEBI Mr Ananta Barua has said at a capital market conference last
month.
Not
just tycoons, India's asset monetisation plan must treat all fairly
It is not that the process and the phenomenan of the
monetization is going to take place in
India for the first time. World over , there have been many a countries, where
this kind of an phenomenan has been done and it were done in some of the
selected areas under their respective Government to raise the revenue for their
nation and Australia has been the last one to do that.
The asset-recycling craze that got under way in Australia with the
2013 leasing of Port Kembla and Port Botany near Sydney is reaching India. So
is the fear that handing over control of public utilities to a small private
sector will hurt the consumer.
The cash-strapped Indian government has identified 6 trillion
rupees ($81 billion) in existing revenue-generating assets, which it will
monetize over four years to fund an ambitious $1.5 trillion pipeline of new
infrastructure. But while New Delhi aims to replicate the fundraising success
overseas, it also needs to heed the Australian Competition and Consumer
Commission Chairman Rod Sims’s warning last month: Privatize to increase the
efficiency of the economy, or don’t privatize at all.
Policy makers in India envisage parting with revenue-earning
operating concessions in exchange for upfront payments or investments. The
deals will be structured as “contractual partnerships” with the state retaining
long-term public ownership. However, to maximize their profit over a limited
time frame, investors would naturally want to raise prices, limit competition
or cut back on upkeep. Singapore had to nationalize its suburban trains and
signaling systems because the main private operator had underinvested in
maintenance, leading to frequent breakdowns and stranded, angry passengers.
Similarly, it’s important to prevent today’s lump-sum gains to the
government from becoming a cost tomorrow. In New South Wales, where electricity
prices doubled in five years after poles and wires were privatized, the
government had to step in with an Energy Affordability Package to lower the
burden on consumers. The Indian taxpayer, already struggling under extortionate
levies on energy, simply can’t afford such largesse.
Without bureaucratic capability and regulatory acumen, the Indian
program could become a transfer of taxpayer-funded assets to a handful of
business groups. This is a concern because of the rising concentration of
economic power in everything from transport to telecom. Airports and seaports
are the stranglehold of billionaire Gautam Adani’s group, which also wants to
acquire Container Corporation of India Ltd., a state-owned logistics firm. The
wireless carriage business, once teeming with a dozen operators, has
effectively turned into a duopoly, led by Mukesh Ambani, India’s richest man.
Privatization of a state-owned aluminum maker only causes job-loss
anxieties among its workers. Once control over utilities is out of the
government’s hands for years, even decades, the broader public will worry about
higher user charges slapped by operators of roads, railways, airports, power
grids and gas pipelines.
The other takeaway from the Australian experience is to let
consumers see for themselves if they're getting a fair shake. As the Sydney
Morning Herald wrote this year, the 2018 sale of 51% of WestConnex, a
controversial motorway in Australia’s largest metropolis, limits the network’s
“exposure to freedom of information requests and budget estimates hearings”
besides diluting “the ability of the state Auditor-General to keep the project
under scrutiny.”
It’s also important to mind the gaps in institutional maturity.
For an emerging market, India already has fairly well-established investment
trusts and toll-operate-transfer structures. But does it have the legal and
regulatory mechanisms to truly de-risk politically sensitive infrastructure
before asking the private sector to put a price on it? Even where environmental
clearances, land acquisition and construction are in the rear-view mirror and
there’s certainty over future traffic, weak regulators can introduce their own
hard-to-price risks.
Take aviation. After a year-and-a-half of Covid-19, India is still
enforcing capacity caps and pricing floors and ceilings on flights, denying
passenger footfall to airports to save some inefficient airlines. Such
arbitrariness results from political economy considerations, which won’t go
away in a hurry. The likes of Canada Pension Plan Investment Board, Brookfield
Asset Management Inc., Australia’s Macquarie Group Ltd. and Singaporean
sovereign wealth fund GIC Pte., as well as local financial institutions are all
likely to bid for public assets on offer, and they may even win some, but they
may never be on a par with entrenched domestic business groups and their
ability to sway regulations.
Then there’s the state’s execution capability, called into
question by long delays in selling government-run banks, the biggest life
insurer, a large oil refinery and Air India Ltd., the national carrier. Frothy
equity markets, resulting from a massive global and local liquidity glut, had
presented policy makers with a golden opportunity to extract great value for
assets, excluding Air India. That bus may have already left. Startups with no
current earnings--and some with perhaps no future profits either--swooped in on
public capital markets and swept the board. The government just kept waiting.
Timing, though, isn’t everything. Finding the right balance
between public and private interests will determine success of a patient asset
recycling program — not just the amount of money raised this year or next. That’s perhaps the most important lesson
from Down Under.
Well , that is it and That sums it all.
Regards and Thanks
Pics
Shyamal Bhattacharjee
Mr Shyamal Bhattacharjee, the author was born at West Chirimiri Colliery at District Surguja, Chattisgarh on July 6th 1959 He received his early education at Carmel Convent School Bishrampur and later at Christ Church Boys' Higher Secondary School at Jabalpur. He later joined Hislop College at Nagpur and completed his graduation in Science and he also added a degree in B A thereafter. He joined the HITAVADA, a leading dailies of Central India at Nagpur as a Sub-Editor ( Sports ) but gave up to complete his MBA in 1984 He thereafter added a Diploma In Export Management. He has authored THREE books namely Notable Quotes and Noble Thought published by Pustak Mahal in 2001 Indian Cricket : Faces That Changed It published by Manas Publications in 2009 and Essential Of Office Management published by NBCA, Kolkatta in 2012. He has a experience of about 35 years in Marketing .
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