By Deepto Roy & Rohit Rajagopal
The upcoming Budget for Financial Year 2023 is a significant one, given the seemingly endless cyclical impact of the COVID-19 pandemic and the resultant market disruptions. In this context, it is expected that the government would continue to provide policy support and guidance to the National Monetisation Pipeline (NMP), an ambitious plan to attract private investments in assets owned by the government (both Union and state) across various infrastructure sub-sectors.
The Centre considers unlocking value in the infrastructure sectors as a key pillar of its plan to revive the economy and to provide growth impetus, particularly to sectors such as construction which bore the brunt of the pandemic. It is equally keen on tapping private sector efficiencies in the operation and management of infrastructure.
It is in this context that the Budget for Financial Year 2023 becomes critical, as the NMP will move into its second year of existence and the government, after a trial year, will move further to operationalise the NMP.
The NMP certainly does not lack in ambition. It covers 20 asset classes spread over 12 line ministries and departments. To avoid the quagmire that previous big bang reforms have run into, it is critical that as it prepares to finalise the Budget, the Centre engages with each of these ministries and departments to not only understand the response of private players to the NMP in the previous fiscal but also cater for any specific budgetary asks/demands of the respective sectors under each of these ministries.
The government’s FY22 target for NMP was a meaty Rs 88,000 crore (of assets to be monetised, including asset monetisation by state governments, for which financial incentives were also offered to states). It is not clear how successful the Centre has been in the last fiscal and suffice it to say that the government should set clear targets and assess the performance of the state governments. If necessary, the government should also make the availability of certain incentives to state governments subject to the fulfilment of the asset monetisation targets.
Specifically, the Centre would do well to offer benefits such as stamp duty exemptions for asset transfers pursuant to the NMP, exemptions under Section 54EC (capital gains) of the Income Tax Act, 1961 etc., for any investments in InvITs etc. pursuant to the NMP.
It would also be rewarding to heed author Michael Blastland’s words: “This is the poorly guarded secret of the policy-making trade: that while telling us how this or that new initiative will change our world for the better, in truth it will likely fail by next Wednesday and be abandoned a year later after much kicking and screaming.” As pessimistic as these words may sound, the Centre’s rose-tinted view of the assets being offered as being relatively risk-free and stable revenue generating, can prevent it from introducing innovations to address risks and offer additional incentives to make the NMP more attractive. Accordingly, even as the Centre is ambitious and upbeat about the NMP, it would need to keep an open mind on investor concerns and requests.
The Centre appears steadfast in carrying out its stated intentions such as with having demonstrably divested its stake in Air India and implementing certain other measures such as bringing the Department of Public Enterprises (DPE) under the Ministry of Finance to ensure better co-ordination of its divestment and monetisation plans. As long as it remains committed to its declared action plan and open-minded to investor concerns, there is every chance that the NMP will not meet the fate that Michael Blastland predicts for most policy initiatives.
Deepto Roy is Partner and Rohit Rajagopal, Principal Associate, Shardul Amarchand Mangaldas & Co.