q-the-national-monetization-pipeline-nmp-is-expected-to-shore-up-economic-growth-with-the-focus-firmly-on-infrastructure-which-will-also-generate-employment-at-a-time-when-the-pandemic-has-left-scores

Q) The National Monetization Pipeline (NMP) is expected to shore up economic growth with the focus firmly on infrastructure, which will also generate employment at a time when the pandemic has left scores of people jobless. Examine.

Why this Question?

Important part of GS Paper-II.

Key demand of the Question 

Discuss in detail about NMP, its components, the impact it is expected to have and the potential challenges in this regard.

Directive

Examine – When asked to ‘Examine’, we must investigate the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications.

Introduction 

Start with an introduction about NMP.

Body 

In the first part, give details about the initiative and the impact it is expected to have on the slowing down Indian economy.

In the next part, write about the potential challenges in moving ahead with the idea.

Conclusion

Conclude with a way forward.

Model Answer

Asset Monetization involves the creation of new sources of revenue by unlocking of the value of hitherto unutilized or underutilized public assets. Internationally, it is recognized that public assets are a significant resource for all economies. A 4 year National Monetisation Pipeline (NMP) has been unveiled by the Finance Minister. This monetisation will create further value for infrastructure creation in the country. It will explore innovative ways of private participation without transfer of government ownership.

Key features of the National Monetisation Pipeline

  1. The NMP’s roadmap has been formulated by NITI Aayog in consultation with infrastructure line ministries, under the ‘Asset Monetisation’ mandate of the Union Budget 2021-22.
  2. The sectors in which assets are being identified to monetise include roads, ports, airports, railways, power generation and transmission, telecom, warehousing, gas & product pipeline, mining, stadium, hospitality and housing.
  3. For now, the government has only included the assets of infrastructure line ministries and Central Public Sector Enterprises (CPSEs) working in the infrastructure sectors.
  4. Monetisation through disinvestment and monetisation of non-core assets have not been included in the NMP.
  5. The framework for monetisation of core asset monetisation has three key imperatives:
  • Monetisation of rights not ownership which means the assets will have to be handed back at the end of transaction life. The overall transaction will be structured around revenue rights.
  • Brownfield de-risked assets: There is no land here, this entire (NMP) is about brownfield projects where investments have already been made and there is a completed asset which is either languishing or it is not fully monetised or is under-utilised.
  • Structured partnerships under defined contractual frameworks & transparent competitive bidding, where Contractual partners will have to adhere to Key Performance Indicators and Performance Standards.
  1. The assets and transactions identified under the NMP are expected to be rolled out through a range of instruments. These include direct contractual instruments such as public private partnership concessions and capital market instruments such as Infrastructure Investment Trusts (InvIT) among others.
  2. NMP aims to provide a medium-term roadmap of the programme for public asset owners; along with visibility on potential assets to the private sector.
  3. The NMP will run co-terminus with the National Infrastructure Pipeline of Rs 100 lakh crore announced in December 2019.
  4. An empowered committee has been constituted to implement and monitor the Asset Monetization programme. The Core Group of Secretaries on Asset Monetization (CGAM) will be headed by the Cabinet Secretary.
  5. Real time monitoring will be undertaken through the asset monetization dashboard. The government will closely monitor the NMP progress, with yearly targets and a monthly review by an empowered committee
  6. The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. These include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%)

Advantages of Asset Monetisation

  1. Resource Efficiency: It leads to optimum utilisation of government assets.
  2. Fiscal Prudence: The revenue accrued by leasing out these assets to private sector will help fund new capital expenditure without pressuring government finances.
  3. Streamlining the Process: Monetisation of assets is not new, but the government has finally organised it in baskets, set targets, identified impediments, and put in place a framework.
  4. Mobilising Private Capital: Since the assets are de-risked as it is brownfield projects, it will help in mobilising private capital (both domestic & foreign). Global investors have revealed that they are keen to participate in projects to be monetised through a transparent/competitive bidding process.
  5. Less Resistance: The plan involves leasing to private sector without transferring ownership or resorting to fire sale of assets. Therefore, it is going to face less resistance from the opposition.
  6. Cooperative Federalism: To encourage states to pursue monetisation, the Central government has already set aside Rs. 5,000 crores as incentive.
  7. Promoting Public-Private Partnership: The end objective of NMP is to enable ‘Infrastructure Creation through Monetisation’ wherein the public and private sector collaborate, each excelling in their core areas of competence, so as to deliver socio-economic growth and quality of life to the country’s citizens.

Challenges to NMP

  1. Lack of identifiable revenue streams in various assets.
  2. Inadequate level of capacity utilisation in gas and petroleum pipeline networks.
  3. Lack of dispute resolution mechanism.
  4. Regulated tariffs in power sector assets.
  5. Low interest among investors in national highways below four lanes.
  6. Lack of independent sectoral regulators.

Monetisation of assets is not new. But the government has finally organised it in baskets, set targets, identified impediments, and put in place a framework. While unlocking assets worth Rs. 6 lakh crores is an ambitious plan, resolving the impediments is expected to bring investors.