NIP is a mega-policy intervention by Government of India, which envisages an investment of Rs 111 lakh crore spread over five years.
Investment in infrastructure continues to be the biggest challenge for any government of the era. Fact remains that infrastructure is the backbone of the economy, as all growth and prosperity depend on the same. Government after tremendous hard work has evolved an innovative scheme, i.e., the National Infrastructure Plan (NIP), which is now under discussion.
NIP is a mega-policy intervention by Government of India, which envisages an investment of Rs 111 lakh crore spread over a period of five years, i.e., 2020 to 2025. The scheme already commenced when the Union Budget 2021-22 entailed a three-pronged strategy to keep the investments under NIP on track, with the first strategy being “asset monetization”. It is an innovative scheme of “capital recycling” where unutilized and under-utilized public assets are transferred to private sector operators for a limited period. This unlocks the idle capital and the money generated is reinvested in other assets or projects for further improved with additional benefits.
Asset Recycling (AR) is quite an innovative scheme and evolving as countries like Australia, Brazil, China, Indonesia, Japan, Mexico, Uruguay, the UK, and the US amidst many others have adopted such policy programs. The real challenge in infrastructure investment is risk management and mitigation for governments world over.
Asset Monetisation is scheduled to operate in a two-part process: first part being monetization of existing assets through sale or lease to the private sector; second follows the first by reinvestment in new infrastructure using the proceeds received in asset monetization. Overall, it presents a win-win opportunity to align investors’ or private players’ preferences and risk appetites with a government’s infrastructure development plans.
Government has already placed National Monetization Pipeline (NMP) of potential Brownfield infrastructure assets to provide a medium-term roadmap for monetization and to give potential investors a ready list of assets to generate investment interests. NMP has adopted bottom-up approach to focus on existing core infrastructure asset base under central sector agencies.
Foreign Direct Investment (FDI) comes in both Greenfield and Brownfield investments. While a company builds its own brand-new facilities from the ground up in the former; in the latter, investment happens when a company purchases or leases an existing facility. Therefore, policy entails more of Brownfield investments to unlock the investments trapped in underutilized but fully-developed public sector assets by tapping the private funds, efficiency and appetite for risk, without transferring the ownerships. Proceeds gained will then augment the existing Brownfield as well as Greenfield projects.
Asset Monetization will also create employment opportunities; address the needs of improved quality public assets and services; facilitate the flagship programs like “Make in India”, “Start-up India”, and “Make in India for the World” etc., and contribute towards overall growth of economy and economic activities in the country.
Innovation for investment became imperative because: firstly, the banks are found reluctant to finance long-term capital, sine qua non for infrastructure growth; secondly, CPSEs (Central Public Sector Enterprises) fixed assets of 14.4 lakh crores can be effectively utilised to arrest their declining fixed asset turnover ratio, which represents how efficiently the assets are being utilized; and thirdly, it will also recycle the assets as monetization through disinvestment and privatization has not proved enough for fear of warring of funds through unwise allocations.
The top five sectors identified in the Monetisation Pipeline policy for FY 2022-25 include Roads (27%), Railways (25%), Power (15%), Oil & Gas pipelines (8%), and Telecom (6%). Together their estimated value capture would be 83% of the aggregate. Assets would be rolled out through a range of instruments relevant to different sectors: direct contractual like PPP; capital market instruments like Infrastructure Investment Trust.
The policy also includes different models of Monetisation: OMT (Operate-Maintain-Transfer); TOT (Toll Operate Transfer); OMD (Operate-Maintain-Develop); ROMT (Rehabilitate-Operate-Maintain-Transfer); InvITs (Infrastructure Investment Trust); REITs (Real Estate Investment Trust).
NMP would work in tandem with NIP to generate investment in underutilised Brownfield units. NMP would be leveraged as strategic funding mechanism to release unutilized capital and augment budgetary outlay of government. The estimated amount that will be raised through monetisation is around 14% of the proposed outlay for the Centre of Rs 43 lakh crores under NIP, currently under implementation.
The investment scheme is innovative in other senses also: first, it would help government to spend more without increasing taxes; it would also not increase the fiscal deficit and debt; the proceeds of Brownfield investment will facilitate investment in Greenfield physical and social infrastructure; it would be beneficial to private sector as well because Greenfield investment involves enhanced risks; and, it ensures long-term risk transfer and gains private sector efficiencies in asset management.
Building infrastructure is the sole prerogative of government. Owning the asset is good, but operating the same has been challenging and pathetic. All governments have been building infrastructure but been unable to maintain it. Hence, government after initial investment can monetize it by leasing out to private sector for routine operation. This has been reiterated even by the World Bank and Kelkar Committee.
The implementation of the policy is bound to be challenging in view of distressing experience with public-private partnership. However, following precautions is a must for the innovation to be successful: the implementation vehicle for the policy must be mostly from private sector managerial staff to the exclusion of bureaucrats and political cronies; independent regulators must be in place; a dispute resolution mechanism must be clearly laid out; monopolies and price jacking must be controlled; periodic review by an independent agency must be done. Government has taken due note of all this and would surely prove the naysayers wrong.
AR may not be a magic wand. Yet, it is an innovative policy and intervention in the pandemic-stricken Indian economy longing for a kick-start. It constitutes a very small fraction of the Indian economy hence experiments could be risked.
Democracy is a form of government where criticism of any policy and plan is the birth right of the the Opposition. The critical appraisal of policies must be there as it provides opportunities for course correction. The criticism must be merit-based and not frivolous and just for the sake of it. The bottom line is to provide a boost to economic growth. Investments would deliver infrastructure and economic growth. Economic growth would ensure peace in society and life of individuals. Governance, after all is about bringing smile on every face.
Tom Vadakkan is national spokesperson of the Bharatiya Janata Party.