Given a situation of rising debt and falling revenues, the planned infrastructure push needs other resources
India has announced a National Monetisation Pipeline (NMP) on August 23. 2021, to partly fund its ambitious infrastructure projects. The same was promised in the Union Budget for 2021-22. However, the government’s plan is being opposed by the Opposition parties.
While the government is calling it essential for the development of the country, the Opposition is calling it an attempt to sell the assets of Central public sector units (CPSUs) to a select number of business houses.
However, the Finance Minister has said that the ownership of all monetised assets would remain with the government and the latter is not selling away these assets.
According to policy think-tank NITI Aayog, the availability of funds through the NMP will have several benefits, such as helping create world-class infrastructure, generate employment, enhance public welfare, boost economic activities and improve ease of living.
What is the plan?
The government has released a list of projects and facilities to be offered to private players over the next four years through structured leasing and securitisation transactions. The plan will cover 20 asset classes spread over 12 ministries/departments.
The NMP will be kicked off by leasing out more than 2,229 km of gas pipelines of GAIL (India) to the private sector by floating an infrastructure investment trust (InvIT).
However, the details of the model that India plans to adopt for monetisation of assets is still unknown.
The aim of the NMP is to unlock the value of investment made in public assets which have not yielded appropriate or potential returns so far, create hitherto unexpected sources of income for the company and its shareholders, and contribute to a more accurate estimation of public assets which would help in better financial management of government resources over time.
The government is expecting NMP to collect ₹5.96 trillion by leasing several assets to private players over four years ending 2024-25. It is expected to fetch around ₹0.88 trillion in FY22, ₹1.62 trillion in FY23, ₹1.79 trillion in FY24, and ₹1.678 trillion in FY25.
The global pandemic has hurt the economy. Due to the lack of demand and absence of private investment due to economic slowdown, India was forced to scale up capital expenditure to create demand and boost the economy.
Therefore, capital expenditure jumped to ₹4.39 trillion against the Budget target of ₹4.12 trillion in FY21. For FY22, the government plans to spend ₹5.54 trillion — 34.5 per cent higher than the budgeted amount in FY21.
Also, due to shrinking revenue in FY21, the total borrowing of the government was increased 2.3 times — from ₹7.96-lakh crore to ₹18.49-lakh crore in FY21. However, it is expected to decline to ₹15.07 trillion by FY22.
Due to a steep rise in borrowings and capital expenditure, the fiscal deficit that was expected to be 3.5 per cent of GDP has reached 9.5 per cent in FY21. It would be 6.8 per cent of GDP in FY22 as the economy is showing signs of recovery from the effect of Covid-19.
The elephant in the room is rising debt, projected by the government to reach ₹135. 87 trillion by march 2022. The World Bank is projected that it would increase to 87.5 per cent of GDP at the end of 2021-22 and 89.2 per cent at the end of 2022-23. The increased borrowing has raised the interest burden.
The ratio of interest payment to revenue receipts is projected at an all-time high of 45.3 per cent in FY22. Almost half of the revenue is going towards servicing old debts.
Due to lack of funds, the government has no option but to find another means of raising capital to fund the National Infrastructure Pipeline.
The government is looking at monetisation of government and public sector-owned assets as an important source of revenue and financing for new infrastructure construction.
According to the Task Force on NIP, India will need to spend $4.5 trillion on infrastructure by 2030 to realise the vision of a $5 trillion economy by 2025.
To achieve the target, the NIP would play a crucial role. In this regard, India launched a ₹102-lakh crore infrastructure drive under NIP, comprising 6,835 projects, in December 2019.
The government proposed three ways to do this in the Budget for 2021-22. They are: creating institutional structures, monetising unused and underutilised assets, and increasing the share of capital expenditure in Central and State budgets. Parliament has already passed a Bill to establish a national bank for financing infrastructure and development.
The government will provide ₹0.05-lakh crore as grant and ₹0.20-lakh crore equity capital. The bank will help fund about 7,000 infra projects under the NIP.
The NIP Task Force has projected total infrastructure investment of ₹111 trillion during FY 2020-25. The NIP requires a major increase in funding from the Central and State governments as well as the financial sector to achieve the target. In implementing the NIP, the Centre’s share is 39 per cent, States’ 40 per cent and the private sector’s 21 per cent.
The project pipeline has been increased to 7,400 projects. The government has completed about 217 projects worth ₹1.10-lakh crore.
There is doubt that the assets returned by private players will be completely depreciated. Thus, as former finance minister P Chidambaram proposed, depreciation of assets should go into depreciation reserves and that must be used by the private players to keep the assets in good condition.
The success of NMP will depend on the government’s efforts. There is the example of disinvestment, where the hasty targets set by the government could be achieved only 5-6 times. As for NMP, the government should set small targets that can be achieved.
The official reason for monetisation of assets is to unlock the value of investment made by the government in public assets which have not yielded potential returns. Hopefully, the money realised through monetisation will be deployed for the creation of infrastructure.
The writer teaches at ITS Ghaziabad