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Unlocking value in assets through monetization

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On 1 February, the FM announced a national asset monetization pipeline to fund projects. There are discussions underway for railways to tap its dedicated freight corridor, AAIs airports in tier 2 and tier 3 cities etc, to be monetized. Mint decodes.

On 1 February, the FM announced a national asset monetization pipeline to fund projects. There are discussions underway for railways to tap its dedicated freight corridor, AAIs airports in tier 2 and tier 3 cities etc, to be monetized. Mint decodes.

What is the purpose of asset monetization?

As is implicit in the term, it’s the process of conversion of assets into economic value. By unlocking the value of underutilized or unutilized public assets, asset monetization creates new sources of revenue for the public sector undertakings owning them. Many assets owned by these public sector units are sub-optimally utilized and hence have failed to yield adequate returns. Monetization of the underutilized public assets, which has been an inadequately explored option until now, will help to garner financial resources for the PSUs and in the long term will lead to efficient utilization of these resources.

How will it impact well-being of the economy?

Monetization of infrastructure assets will have a two-pronged benefit—it will yield appropriate returns for the concerned PSU and promote balanced regional development. As of now, these assets have been lying idle and, with private entities bidding for them, they will be utilized for creation of productive assets and setting up of factories leading to regional economic development. Also, the concerned PSU will get access to additional resources which can be utilized for restructuring, reinvestment and expansion. It can also trim market borrowings by PSUs and bring down interest payment burden.

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How does the government plan to implement this?

The institutional framework laid down for asset monetization specifies that an mechanism will be put in place for the disposal or leasing of identified public assets. A threshold limit based on the value of the asset will be set and any asset identified below this threshold value will be long-term leased or disposed of by the concerned ministry, CPSE etc.

What did Budget say about monetization?

The budget for 2021-22 proposes a national monetization pipeline, of potential brownfield projects. The Centre plans to transfer five operational roads worth 5,000 crore to the InvIT of NHAI and also shift 7000 crore transmission assets to PowerGrid’s InvIT. Also in the pipeline are for monetization of DFC assets by Railways, operational toll roads of NHAI, oil and gas pipeline of IOC, GAIL, Hindustan Petroleum, warehousing assets of CPSEs, and AAI’s airports in tier 2 and tier 3 cities.

What is the economics behind this strategy?

Monetization of unutilized assets which are not a part of operations is the way forward. Railways owning approx. 47,000 hectares of land is the front-runner in ownership of such assets. The NHAI is aiming to raise 1 trillion via the toll-operate-transfer model over next 5 years. Revenue proceeds can be used to fund the national infrastructure pipeline thereby resulting in reduced demand on the exchequer and the taxpayer.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH

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