Home / Markets / Mark To Market /  Why India's grand asset monetization plan left markets cold

The national monetization plan announced on Monday is the next logical step by the government towards its ambitious infrastructure spending plan that it announced in 2020. In essence, though, the programme is nothing but a new funding route with a fancy name for a cash-strapped government. The Street’s lukewarm response to the 6 trillion worth plan, therefore, shouldn’t be surprising.

As such, the intention of monetizing assets was already made clear in the Union budget and priced in by the markets. Monday’s announcement essentially contained the contours of the scheme through which the government will unlock value in its assets.

Over four years, it plans to lease out a bunch of its core assets, mostly brownfield projects in key sectors such as roads, power and railways. To begin with, a target of 88,000 crore has been set for the current fiscal year. Higher targets have been set progressively over the next three fiscal years to achieve a total of 6 trillion worth of investments.

Bringing big bucks
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Bringing big bucks

Some market participants believe the target itself looks ambitious.

“The national monetization plan seems to be a bit aspirational, considering the target set to be achieved in just four years. I don’t think we have a track record in meeting such a target, so it is a tall task," said Sahil Kapoor, head of products and market strategy at DSP Investment Managers.

The government intends to use infrastructure investment trusts (InvITs) and real estate investment trusts (Reits) in projects where cash flows are clear. In sectors such as mining and aviation, where cash flows are not visible, a public-private partnership (PPP) would be built.

Reits and InvITs have seen reasonable interest from investors so far, and analysts believe that the government can expect investors to come easier here. What’s more, the rules here were eased to allow retail investors to participate too. Ergo, the government can hope to unlock revenue here faster.

The PPP model, though, has had its challenges in the past, and some of these still remain. PPP contracts are long, usually stretching to more than 20 years, involving complicated and sometimes daunting clauses. In many instances, PPP hasn’t given the desired results on revenues.

Either way, the success of the government’s plan to get private participation hinges on the details.

“We believe the appetite of the private sector will also depend on other factors like the duration of the concessions, institutional mechanism for dispute resolution, ability to operate the projects at commercial rates, regulatory and taxation issues, among others," wrote analysts at Nomura Global Markets Research in a note.

Kapoor of DSP pointed out that finding investors would also depend on the internal rate of return and other granular details. Above all, market conditions must be conducive, he added.

On the whole, the monetization plan ensures that the government does not have to blow up its fiscal deficit in order to spend on infrastructure. It intends to use the revenues garnered from the leasing of its roads, railway lines, power grids, telecom fibres and airports and use the same for new projects.

Tanvee Gupta Jain, an economist at UBS Securities India, points out that fiscal consolidation won’t be impacted. Short on details, the monetization plan for now just reiterates the Union government’s intention for capital spending. The jury is still out on the implementation part

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