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Government Kicks Off Asset Monetisation Drive

Editor, TRANSFIN.
Mar 18, 2021 9:02 AM 4 min read
Editorial

The winds of disinvestment are blowing ever so fiercely over India.

In fact, they’ve been blowing fiercely for many years now...allegedly.

On Tuesday, the Government unveiled plans to monetise a string of assets including roads, gas pipelines, airports, telecom towers, passenger trains and sports stadiums.

A long time coming, these plans come on the back of dwindling tax revenues and increased expenditure requirements - and need to be taken with a spoonful of salt considering the Government’s less-than-perfect disinvestment track record in recent fiscals.

What is Asset Monetisation?

This is when governments raise revenue by unlocking the value of hitherto unutilised or underutilised public assets. This need not always involve the sale of these assets, but also the following:

  • Direct contractual approach -  something adopted by the National Highways Authority of India via modes like toll-operate-transfer (TOT) and operate-maintain-transfer. Involves bundling projects and giving them out to private entities that maintain and operate the asset. The Government body gets an upfront fee or annual payments from these private operators.
  • Structured finance - collective investment schemes like infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) i.e. securitisation of assets for raising bonds or placing them under trusts created under SEBI-specified guidelines.
  • Land monetisation - selling or leasing publicly owned land parcels.

So, as we can see, asset monetisation is different from disinvestment via the sale of state-owned stakes in state-owned enterprises, which can also involve the transfer of ownership in the entity.

 

Long Time Coming

Tuesday’s announcements are in line with the Government's broader shift towards asset monetisation, something that has been in the works for at least two years now

There was the Asset Monetisation Pipeline, the outline for which was presented by the Finance Minister in Budget 2021 (CRISIL Infrastructure Advisory is reportedly preparing this Pipeline). Niti Aayog has been tasked with preparing a list of monetisable assets for FY21-24, with ministries being asked to identify the same.

Meanwhile, a Core Group of Secretaries for Asset Monetisation met last month to discuss this pipeline. And the Prime Minister has of late been vocally admonishing Government intervention in business, embracing his inner Thatcher and saying things like “the Government has no business to be in business”. Singing paeans on the importance of the private sector, he has been seeking to pitch privatisation as a way to foot the bill for welfare and development projects.

All in all, the Government has a stated target of raising ₹2.5Lcr ($34.46bn) via asset sales. But unlike disinvestment proceeds (the FY22 goal for which is ₹1.75Lcr ($24.12bn)), this is not bound by annual targets.

FYI: Niti Aayog has already identified about 100 assets for the privatisation drive. They are valued at c. ₹5Lcr ($68.9bn).

 

What was Announced Yesterday?

Eight ministries’ assets have been shortlisted under the monetisation pipeline.

The modes of monetisation are varied. The Ministry of Railways aims to award 150 passenger trains to private players and also issue RFPs (Requests for Proposal) and RFQs (Requests for Qualification) to redevelop 50 railway stations. The Ministry of Road Transport and Highways plans to monetise 7,200 km of roads through InvIT, TOT and securitisation. And the Ministry of Youth Affairs and Sports is looking to lease out sports complexes like the Jawaharlal Nehru Stadium to the private sector by way of operation and maintenance contracts.

As for Civil Aviation, the Ministry plans to monetise 13 airports via the Operation, Management, Development Agreement (OMDA) model. It will also divest the remaining equity stake held by the Airports Authority of India (AAI) in the Delhi, Mumbai, Bengaluru and Hyderabad airports in which the AAI holds 26%, 26%, 13% and 13% respectively. (Mr. Adani must be jubilant right now!)

 

Will History Continue To Be the Trend-Setter?

“The Government has ambitious plans for privatisation.” We’ve been here before. Many times.

The Finance Minister said during her Budget Speech that the disinvestment of BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Ltd - among others - would be completed within the upcoming financial year.

Coupled with the LIC IPO and the recently unveiled asset monetisation targets, meeting all these goals in a span of a single fiscal seems like a tall order.

It also reeks painfully of déjà vu. The Government has a habit of setting sky-high disinvestment targets every year, only to miss them with remarkable consistency. As you can see in the chart below, targets were met in only two fiscals since FY11.

In FY21, for instance, the target was ₹2.1Lcr ($28.9bn) before market realities forced this to be revised down to ₹32,000cr ($4.4bn). This revision was understandable considering it was a pandemic year, but the actual proceeds received as of March 9th 2021 were only ₹21,303cr ($2.9bn) - well short of even the revised expectations.

To be fair, the Government’s eagerness to accelerate the privatisation drive is explicable. The fiscal deficit for 2020-21 has been pegged at 9.5% of GDP and at 6.8% for 2021-22. The pandemic-induced recession, the brutal slowdown that preceded it, dwindling tax revenues and the heightened need for Government spending have emptied state coffers. At the same time, the Government refrained from raising taxes (its main source of revenue) in Budget 2021, corporate, income or GST.

Thus, the need to amp up inflows from alternate avenues has become all the more important. But setting goals is one thing; ensuring that they are achieved is another ball game altogether.

And augmenting disinvestment goals with additional ones of asset monetisation would be akin to building castles in the air without actual realisation. If history is any indication at least, meeting all these targets will be easier said than done.

FIN.
 

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