Mains Practice Questions
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Q. It is beilieved that monetising underutilised public assets will bring in required capital
and help build new infrastructure to boost the economy. Discuss the statement in light
of the recently launched National Monetisation Pipeline. (250 Words)
22 Sep, 2021 GS Paper 3 Economy
Approach
Start with writing about the national monetisation pipeline (NMP) in brief and
rationale for its launch.
Discuss the advantages of the NMP.
Discuss the challenges with the NMP.
Suggest a way forward.
Introduction
The National Monetisation Pipeline (NMP), prepared by the NITI Aayog, aims to create
a virtuous cycle of “develop, commission, monetise and invest” in national
infrastructure.
It aims to unlock value in brownfield projects by engaging the private sector,
transferring to them revenue rights and not ownership in the projects, and using the
funds generated for infrastructure creation across the country.
Rationale For NMP
India needs more infrastructure but the public sector simply doesn’t have the
resources to build it. There are two possible responses.
Building new infrastructure has two constraints for any country including India:
Access to patient, predictable and cheap capital; and
Execution capability, where government and private agencies can take up
multiple marquee projects simultaneously.
Thus, NMP is devised to provide a stimulus to improve the infrastructure
sector.
Body
Advantages of NMP
Generate Resource Augmentation: NMP will help the government get access
to capital via interested private parties.
These investors will maintain and operate the monetised assets, generating
cash flows, but also create technical and human resource capacity in the
infrastructure sector.
Government Maintains the Ownership of Asset: The existing brownfield, de-
risked assets, which are part of the four-year monetisation pipeline, will help
create execution capacities for new greenfield assets.
The government is monetising the rights to operate and maintain the
assets, not their ownership.
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Fair Value Share: Contracts will be designed in a way that the government
receives fair present value from the monetisation, while private parties get
enough operational flexibility and regulatory visibility.
Moreover, given that the contract terms can be 25 years or even higher, the
bidding interest shows investors are confident of long-term regulatory
stability and certainty.
Better Targeted: NMP introduces no new financial liability to the taxpayers and,
in fact, represents a better targeted “user pays” structure.
Eg. If a stadium in Delhi is not monetised, taxpayers around the country as
a whole will pay for its upkeep. But a monetised stadium is paid for only by
those accessing the facilities in Delhi. This is a much better way to generate
operational revenues.
Associated Challenges
Realising Adequate Value: The First and foremost criticism is whether adequate
value from the assets will be realised or not.
This depends on the quality of the bidding process and whether enough
private players are attracted to bid.
Execution Risk: There will be execution risk in such a large programme.
However, this is exactly why NMP is not adopting a one-size-fits-all approach.
Issue of Taxpayers’ Money: The taxpayers have already paid for these public
assets — and, so, why should they pay again to a private party to use them.
Suboptimal Contractual Enforcement: A criticism is born out of scepticism
about a sub-optimal contractual and judicial framework to make such a plan a
success.
Monopolistic Outlook: A few business houses will corner the bulk of the assets
offered under NMP.
Way Forward
Dispute Resolution Mechanism: Strengthening the judicial processes can not
be much emphasised. Efficient and effective dispute resolution mechanisms will
naturally and automatically accrue to the design and execution of NMP too.
Streamline PPP: Recent experience suggests that public-private partnerships
(PPP) now involve transparent auctions, a clear understanding of the risks and
payoffs, and an open field for any and all interested parties.
Thus, the utility of PPP in greenfield projects can not be neglected.
Transparent Bidding: Transparent bidding is one of the most important parts of
the NMP project. Thus, maintaining transparency is the key to adequate
realisation of the asset value.
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