[Editorial Analysis] On assets, a narrow view

Mains Paper 3: Economy
Prelims level: National Monetization Plan
Mains level: Resource Mobilization

Context:

• Recently Indian govt has unveiled a four-year National Monetization Pipeline (NMP) worth Rs 6 lakh crore to unlock value in brownfield projects by engaging the private sector. has raised many debates about its need and efficacy.

NMP:

• Govt unlock value in brownfield projects by: The engaging private sector, Transferring them revenue rights but not projects ownership, Utilizing the funds so generated for infrastructure creation across the country.

• It has been announced to provide a clear framework for monetization and give potential investors a ready list of assets to generate investment interests.

• The govt has stressed that these are brownfield assets that have been de-risked from execution risks and therefore should encourage private investment.

What is Monetization?

• In this transaction, the govt is transferring revenue rights to private parties for a specified transaction period in return for upfront money, revenue share basis and commitment of investments in the assets.

• Real estate Investment trust (REITS) and Infrastructure investment trusts (InvITs) are the key structures being used to monetize assets in the roads and power sectors.

• These are also listed on stock exchanges providing investors liquidity through secondary markets as well.

• While these are structured financing vehicles, other monetization models on PPP such as Operation Maintain Transfer (OMT) and Toll Operate Transfer (TOT) have been used in highway sectors while Operations, Maintenance and Development (OMD) is being deployed in the case of airports.

• Monetization will create further value for infrastructure creation in the country and explore innovative ways of private participation without transfer of govt ownership.

• Since many complete assets are either languishing or no fully monetized or are under-utilized.

• So, by bringing in private participation in this arena, govt will be able to monetize it better and ensure further investment in infrastructure building.

The Govt’s Plan:

• Roads, railways and power sector assets will comprise over 66% of the total estimated value of the assets to be monetized.

• In terms of annual phasing by value, 15% of assets with an indicative value of Rs 0.88 lakh crore are envisaged to be rolled out in the current financial year.

• The NMP will run a co-terminus with the National Infrastructure pipeline of Rs 100 lakh crore.

• The estimated amount to be raised through monetization is 14% of the proposed outlay for the Centre of Rs 43 lakh crore under NIP.

Criticism of NMP:

• It can be argued that the private sector could not be entrusted with the custodianship of these socially important assets.

• The design of NMP is out of sync with contemporary pressures and set within a narrow frame because the world is in the crosshairs of existential challenges.

• Further India has a mammoth task to tackle endemic poverty, social polarization and democratic institutions erosion.

• The model is conceptualized solely around financial value metrics based on conventional tools which result only to recover the revenue along with their profits.
• Which ultimately absolves the govt from the responsibility to unlock the intrinsic social value of these assets.

• It is designed to attract deep-pocketed financial institutions and industrial conglomerates because of its high valuations.

• This results in a deepening of the concentration of capital and existing inequalities.

• Further, it does not build in safeguards to manage or mitigate economic and social implications.

• If the rationale of NMP is the low productivity of PSEs due to structural factors does not make any sense because any structural factors are beyond the control of any entity that has impeded their growth.

Reasons for Low productivity of PSEs:

• Systematic hurdles related to weak dispute resolution,
• Regulatory miasma
• Lack of transparency in governance,
• Pricing distortions
• Instructive bureaucratic interventions.

• Unless the above issues are resolved, the private entities find it difficult to harness their full value.

• Further, if the above issues are resolved, the PSEs will be better custodians by looking beyond the accretion of financial value.

Conclusion:

• In today’s world, there are no shortcuts to sustainable development. For a country like India, Public-Private investment is the need of the hour but they must be modeled to generate social value also.

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Prelims Questions:

Q.1) With reference to the Hurricane Ida, consider the following statements:

1. Hurricane Ida is a weakening tropical depression that became the second most intense hurricane to strike the U.S. state of Louisiana on record.

2. Ida slammed into the Louisiana coast as a Category 4 storm.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

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