What is the difference between The assets monetization plan of the Govt of India and the sell-off of assets?

The word Asset monetization is in the news now a day. What is asset monetization? This question is being asked frequently. It is the alternative way of generating revenue by unlocking the economic value of unutilized or underutilized public assets.

It is said that if you would like to transform your country you need to invest in the infrastructure sector in a big way.

In this context, we are going to discuss Asset Monetization.

 

 

What is asset monetization?

 

Monetization is not a sale. We need to differentiate between monetization and Sale. Monetization is one kind of partnership, where you are unlocking or recycling your investment and bringing the private sector for managing the assets. This is not one time sale. Ownership is not being transferred.

Why Asset Monetization is needed?

 

During the first wave of Covid economic activity had completely stopped and in the second wave also economic activity was crawling if not stopped. So to make up for this loss of business we need enhanced investment in the infrastructure sector for reviving the growth. Covid has taught us that we need to have good quality resilient infrastructure development. We need to create world-class infrastructure keeping long-term as well as the short-term goal in mind. For accelerated growth, we need to have a good investment in the infrastructure. Is long-term capital available for scaling up the infrastructure investment? The answer is a big no. So for arranging the fund on a big scale we need to explore different alternatives.

 

 

Asset Monetization will bring growth

 

If we all aspire to see India as a world power or at least would like to see India as the top four or five economies in the world then we all will be agree that sustained growth is required to achieve that goal. Pandemic has hit the world hard. India is no exception. The Business has suffered. People have lost the job. We have almost come out from the second wave now but danger has not gone yet. In this background Government of India is eager to accelerate the growth and to create the job. For these two to happen we need a big investment in the country. Especially in the infrastructure sector. The Infrastructure sector has the ability to drive businesses and generate employment. It also determines the quality of life. Well-managed infrastructure is the key to growth and job creation.

 

 

What is the monetization strategy?

 

What is the benefit of monetization? Once you start monetizing your assets on one hand recycling of your capital starts and on the other hand you tap the skill and expertise of the private sector in operating and managing the infrastructure. 

In the last few years, India has made a huge investment through public funding. Today we have one of the largest fixed assets in the world. Our past experience says we are successful in creating world-class infrastructure through public funding but the public sector is not successful in managing it efficiently. When comes to managing the assets, The Private sector has the upper hand. They have the expertise and efficiency to manage or run the infrastructure. So it is always beneficial that both should work as a team. 

India has well defined PPP (Public-private partnership) model and it is running quite successfully for the last many years. In PPP model Public sector retains the ownership. The Private sector transfers back the assets to the government after a particular agreement period. This is a part of our PPP ecosystem and it is running quite successfully. But in the last few years, private sectors and debt financers have shown a reduced appetite for Greenfield infrastructure. So a situation like this demands innovative thinking for tapping the funding of the private sector. In this background, asset monetization comes into the picture.

 

What are some examples of Asset Monetization?

 

The Private sector has shown great interest in Brownfield assets. We can see that private and institutional capital has shown keen interest in the sector such as Telecom, Power, and Roads. Private sectors have effectively utilized risk management structure and monetize road power telecom sector assets. Toll roads, Telecom towers, Transmission towers, Pipelines have been monetized effectively. National highway authority of India (NHAI) has monetized roads and raised around 17000 Crore . The Power grid has just raised 7700 Crore. Airport Authority of India (AAI) has just monetized its 6 Brownfield airports through the operation management and development agreement (OMDA) model. Indian railway has also launched the PPP model for station development and running passenger trains. So monetization is not new but it is an ongoing exercise. Time has come to rapidly adopt, evaluate and replicate the success story of monetization programs.

 

What is an asset monetization pipeline?

 

The Creation of the National monetization Pipeline (NMP) is a step in the right direction. This will help the government to look for Brownfield assets inventory beyond the traditional sectors such as road and power. This is four- year pipeline from 2022 to 2025. This will provide visibility to the investor on potential financing opportunities. Through NMP government has planned to raise 6 lakh crore by 2025. The Top three sectors under this pipeline will be Railways, Airports, and coal mining. The ownership of assets will remain with the government. The Private sector will pay upfront as rent for fix period (let say 25 years) and then after completion for that period asset will be hand back to the government.

 

What is asset sale?

 

As far as asset sale is concern it is a one-time transaction. Through this transaction, Government does complete or partial sale of the assets. Like just now the government has disinvested Air India and it has been sold to TATA. There are many ways through which GOI can do the disinvestment or sale of the assets. Ownership of that particular asset goes to that particular buyer. Ownership will depend upon the terms and conditions of the sale. But certainly, it is entirely different from asset monetization.

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