Recently the government of India decided to raise about 6 trillion rupees by leasing infrastructure assets of central government and state- run public sector companies. Today we are going to discuss how this decision of setting up a National Monetization Pipeline (NMP) is going to affect growth in Indian Economy? In other words, What is the Funda behind it?
First of all, let us get familiar with the term monetization. The term monetization may be defined differently in different contexts.
For example, in economics monetization may imply infusing more money or printing more money in the economy. This may, of course raise concerns about the resultant changes in supply or value of money.
We also use the term monetization in the context of an economy, which converts itself from a traditional barter economy into a modern economy where the goods and services can rather be exchanged for money.
OK these are some of the familiar ways that we talk about or explain the term monetization. But when we come across a news that the government is planning to raise a huge amount of money through monetization of infra-assets, we may like to know what is it all about?
NMP is a Unique way of Raising Additional Resources
The Funda is that through this monetization the government is thinking about raising capital from infrastructure assets that currently don’t generate revenue .
The top five sectors by value under the government’s asset monetization programme are roads (27%), railways (25%), power (15%) Oil and natural gas pipelines (8%) and telecom (6%). According to the media reports, the government plans to lease 26,700 km of roads, 90 passenger trains, 400 railway stations, 28,608 circuit km transmission lines, 286,000 km of Bharatnet fibre network and 14,917 towers owned by state-run BSNL and MTNL.
There are also plans to lease out other core infrastructure assets such as airports in smaller cities, dedicated freight corridor assets, warehousing assets of state-run companies and things like sports stadiums etc. These funds would then be used to build new infrastructure projects.
The government has assured that the funds will be raised through leasing and there would not be any land sale happening under it. The assets are brownfield assets – where investment has already been made, and they are now either underutilized or languishing.
NMP may prove to be Less Inflationary
In my opinion, NMP is going to be a win-win proposition for both the private sector and the government: the logic is simple. The infrastructure projects generally require huge investments having a long gestation period in most cases. The private sector may not be inclined to set up infra projects in such cases. But they may show interest in operating these projects which rather requires less of bulky investments and may give them quicker returns.
On the other hand, the government needs resources to extend infrastructure facilities in areas which are in need for them. Monetization gives them a chance to raise additional resources in a non-inflationary manner. This may even give rise to a virtuous circle of development as opposed to the vicious circles of poverty which often characterise a developing economy.
Anything to boost Infra sector may be good for the Economy
Raising resources asset monetisation in Infra sector may set into motion a virtuous circle of development. According to me, it begins with the first stage where the infra assets are already created by the government and public sector enterprises to begin with. Some of these assets which are either idle or underutilized are leased out to the private sector through contractual partnerships tied with key performance indicators and performance standards. The private sector would, guided by profit motive, attempt to perform and strive for revenue generation. This will lead to more employment, higher income, and more resources to the government as revenue with which the government would create more of such infra assets in future and so on and so forth.
This seems to be a welcome move by the government. Not only the idle or under-utilized assets will get monetized, but the private participation will create employment for people not only in the infra sector but also in other sectors such as agriculture and MSMEs in rural and semi-urban areas. The growth will be achieved without creating additional pressure on the fiscal equations for the government, giving impetus to growth and that too in a relatively less inflationary manner.