Pipeline of brownfield assets unveiled for FY22-25; CPSEs to use the proceeds to invest in greenfield ventures
The Narendra Modi government on Monday unveiled a National Monetisation Pipeline (NMP), seeking to generate upfront revenues of Rs 6 lakh crore in the four years starting FY22, out of operational infrastructure projects, under various innovative long-term lease plans that involve minimal ceding of government’s ownership of the assets.
The move is in step with a plan to revert to the path of fiscal consolidation without any lapse of time and create the fiscal heft to finance the Rs 111-lakh-crore National Infrastructure Pipeline and other capital-intensive ventures. The idea is to crowd in private investments in infrastructure by making matching public funds available.
The assets to be monetised through “structured contractual partnership as against privatisation or slump sale of assets”, will include highway stretches, power transmission networks, freight corridors, airports, ports, gas pipelines and warehousing facilities.
The key feature of the NMP, prepared by the Niti Aayog, is that it involves monetisation of rights, not ownership. The assets have to be returned to the government or the public agency concerned at the end of the transaction life. The government feels that since brownfield, ‘de-risked’ assets are to be offered, private investors and global patient capital would be incentivised to invest in them.
Also, the fiscal pressure on the government to find budgetary resources for public capex would reduce, since the central public sector enterprises (CPSEs) and government undertaking like the NHAI and the Railways whose operational assets are being monetised, could use the proceeds to bolster their greenfield investments. In recent years, the Centre has been giving annual budgetary support to the tune of Rs 1.5-2 lakh crore to these entities, to enable them to keep capex at elevated levels.
Also, over the next four years, the share of non-tax revenues in the Union government’s overall revenues could rise as as result of the NMP.
“Asset monetisation will lead to value unlocking. Ownership of assets will remain with the government and there will be a mandatory hand-back,” finance minister Nirmala Sitharaman said.
NITI Aayog CEO Amitabh Kant said: “New models like Infrastructure Investment Trusts & Real Estate Investment Trusts will enable not just financial andstrategic investors but also common people to participate in this asset class thereby opening new avenues for investment”.
Delivering the Budget speech for FY22, Sitharaman had said: “We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including Public Sector Enterprises and land.”
The government brought in a law in late March to set up a development finance institution (DFI), which would play a catalytic role in funding projects under the National Infrastructure Pipeline, among others. The National Bank for Financing Infrastructure and Development (NaBFID), as the DFI will be known, is in the process of taking off. The government expects the NaBFID to raise as much as Rs 3 lakh crore over the next five years, leveraging the proposed initial capital of Rs 20,000 crore. Initially, the government will fully own the DFI but, as more investors join in, it is willing to dilute its equity to 26%.
The Centre’s fiscal deficit in 2020-21 stood at an abnormally high 9.2% of the GDP, owing to Covid-induced decline in receipts, fiscal stimulus and various welfare measures, including income transfer scheme to farmers rolled out to address the distress caused the pandemic to the industry and people at large. The high level of deficit was incurred even as the stimuli were not big enough to pump prime the economy to the desired extent. While the deficit in 2021-2022 is estimated to be 6.8% of GDP, many analysts are of the view that it could be marginally, if not significantly higher.
Alok Saraf, partner at Grant Thornton Bharat, said: “This announcement (NMP) comes at a point where the market is bullish and FDI inflow has grown over 40%, hinting on India being a preferred investment destination amongst global investors. This asset monetization model will not only lead to better financing structures and mechanisms, but participation of private sector will also give push to digitization and innovation.”