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Mainstream, VOL LIX No 42, New Delhi, October 2, 2021

Asset Monetisation as Instrument for creation of Greenfield Assets | Atul Sarma & Shyam Sunder

Friday 1 October 2021

by Atul Sarma & Shyam Sunder*

As is well known, India is hugely deficient in its infrastructure both in terms of quantity as well as quality, which not only impedes efficient functioning of the economy but also raises cost of production. In this context, the government’s intent to meet such deficit is quite legitimate. However, Covid-19 induced challenges leading to slump in GDP growth, government revenue shrinkage yet inevitable compulsion to expand government expenditure including giving succour to jobless millions and growth stimulus have led to government fiscal deficit to almost 9.3% of GDP in 2020-21, and general government debt to 90% of GDP in the current year. The thoughtless cut in corporate tax prior to budget 2020-21 leading to annual revenue loss of Rs.1.45 lakh crore has further added to the fiscal stress. That has driven the government to look for unconventional sources of revenue to fund the Rs.110 lakh crore national infrastructure pipeline. The government has found it in asset monetisation

The Union government has proposed to mobilise about Rs 6 trillion by way of monetising 20 plus brownfield asset classes, top three sectors being Roads (27%), Railways (26%) and Power (15%) by value held by it, and its PSUs across 12 plus line ministries / departments. The government will “monetise” the identified assets by letting the private sector bid for operating such assets for 25 years, for a lump sum upfront payment. However, it will not give away title to the underlying assets.

The basic idea underlying the proposal is to unlock the value of investments in public sector assets that are either languishing, or remaining underutilized, by tapping private sector capital and efficiencies. The proceeds would be deployed to augment greenfield assets. Through this process, the government intends to raise Rs 88,190 crore through asset monetisation in the current fiscal, Rs 1.62 lakh crore in 2022-23, Rs 1.8 lakh crore in 2023-24 and Rs 1.67 lakh crore in 2024-25.

Budget 2020-21 envisaged a National Monetisation Pipeline (NMP for four years, from 2022-2025). NITI Aaayog was entrusted with the task to create an NMP for brownfield core infrastructure assets. Indeed, it has prepared a detailed guideline for brownfield asset monetisation.

However, asset monetisation as a source of revenue is not new. Roads and bridges were monetised in the past. What is new is the large spectrum and scale of assets proposed to be monetised. The idea of monetising idle or underutilized brownfield public assets and deploying the revenue therefrom for funding new assets looks rather attractive in principle. But there are several concerns as well as challenges.

First, the past experience of government’s attempt to monetise brownfield assets are not encouraging. For example, the Indian Railways initiated on July 1, 2020, the formal process of inviting private parties to run 150 trains on the Indian railway system. When bids were opened last month, there was no bidder for bids for nine clusters while there were only two for three clusters. Even for these three clusters, the only serious bidder was Indian Railways’ own company IRCTC, which in effect nullifies the basic objective of unlocking private capital.

Second, Public assets in sectors like airports, railways, roads, power, ports, gas pipelines, mining and telecom which have been created with the taxpayer’s money over the past 70 years are being offered to private players via long term leases of 25-50 years. It raises a major issue of inter-generational equity. It is that how does the government intend to compensate subsequent generations if it appropriates all their future earnings today? A clear articulation of a framework of inter-generational equity by way of listing new assets proposed to be created or promising to liquidate national liabilities is absolutely needed to justify such a massive monetisation of public assets.
Third, the experience of leasing out six airports for 50 years to a single bidder has created the apprehension of transferring of taxpayer-funded assets to a handful of business groups.

Fourth, prospective bidders necessarily motivated by profit maximization would carry out due diligence of the assets before offering their bids. For example, they would assess the volume of investment that would be required to ensure reasonable profit. Similarly, they would assess various types of possible risks over the lease period ranging from 25-50 years including the risks associated with any change in ruling party with different ideologies. Also, they would assess the volume of assets and liabilities. Eventually, there could be left with a fewer number of serious bidders as happened in the cases of Air India, Railways, or airports. This situation might lead to a situation of monopoly or duopoly or oligopoly and thus to concentration of wealth.

Fifth, given the nature of infrastructure services that the listed assets provide, there will be a need for putting in place an independent regulatory mechanism to protect the interests of both service providers and consumers. This is a great challenge in that usually retired bureaucrats even without professional expertise or experience find place in regulatory mechanisms. In fact, in the case of Railways, it is reported that when a retired railway personnel was placed as a regulator, bidders got discouraged to make bids.

Sixth, assuming successful monetisation of assets and resource mobilization, the issue arises: how the money would actually be utilized. Asset monetisation will be counted as disinvestment proceeds. No doubt, the government intends to deploy it to finance the Rs 110 lakh crore national infrastructure pipeline. However, the government cannot ignore that rating agencies tend to give high weightage on fiscal balances and that good rating attracts FDI. With the fiscal deficit being what it is, will the government still be able to use the asset monetisation proceeds for national infrastructure pipeline? Assuming it will do so, there still remains the question: which type of assets would be created? Would it be assets like more Central Vistas, Bullet trains, six-lane highways and statues of record setting height?

Seventh, how would the successful bidders raise the fund for upfront payment and subsequently for the required investment on the leased assets so to make it profit yielding? Clearly, big players will have an edge over the small players. With the government’s preference to build up a few national champions, even at the risk of monopolistic behavior, a few conglomerates are likely to benefit.

Eighth, the past record in execution of asset monetisation as in the case of railways or Air India or disinvestment is any guide, the year-wise projection of resource mobilization is rather unrealistic. Monetising of the listed assets, after all, would require far more detailed works than just disinvestment.

Finally, private investors’ objective being profit maximization, would they invest on leased assets more than what is needed to maximize their profits during the lease period, or would they like to leave the assets spick and span on the expiry of lease or after sucking them dry?

Overall, brownfield asset monetising for creating new infrastructure in a highly infrastructure deficient country like India is attractive in principle. But its successful implementation is fraught with numerous conceptual ad operational challenges as illustrated above.

*(Authors: Atul Sarma (sarma.atul[at] is Distinguished Professor at CSD, New Delhi and Shyam Sunder ([at] is working with an Indian Corporate. Views are personal.)

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