National Monetization Pipeline 2.0: The latest plan’s size is impressive but its success isn’t guaranteed

The target for NMP 2.0 is ₹16.72 trillion—over the next five years, if one goes by the official press release, or longer if one looks up the Niti Aayog report that it references. Estimate precision is not at a premium; the press release ends with the following caveat: “The monetisation potential values assessed under NMP 2.0 are indicative and are subject to variation at the time of the actual transaction.”

In any case, that sum is not the net present value of all streams of receipts over the next five years or more, but simply the aggregate of expected revenues without any discounting for the time value of money. Nor is it what state-owned assets put to work under private management are expected to yield. It includes ₹5.8 trillion of private investment expected to materialize during the process of asset monetization.

If an asset created under public ownership has been performing its function and also generating income for the government, what is the net benefit to society of placing it under private control?

Asset cycling of the kind India has adopted, with asset ownership kept public but operating rights awarded to private operators for fixed terms, offers four types of benefits.

One, the state might be running an operation sub-optimally and at higher cost, so efficiency gains could be made by letting a private entity take charge.

Two, state ownership often gets in the way of realizing user charges that not only cover all costs—such as maintenance and depreciation—but also obtain a return, while private managers would be able to revise user charges with lower public resistance.

Three, if an asset is monetized in a way that gets the government the capitalized value upfront of several years of future revenues, it would give it the fiscal leeway needed to undertake fresh investments in sectors that have gestation periods too long for private investors and call for patient capital.

And four, state ownership mitigates certain kinds of risk by its very nature, making it cheaper for the state than private players to finance new infrastructure, which in turn allows projects to charge less for their services.

However, this model is not without its share of risks. While the government’s asset monetization plan that falls short of privatization shields it from political charges of selling the ‘family silver,’ the exercise must maintain transparency to shield it from charges of favouritism.

The terms on which private firms are chosen to run monetized assets must be crafted carefully. This is critical where private operators get space for monopoly pricing. In the past, airport privatization erred by fixing bid parameters to maximize the revenue accruing to the government without a thought to minimizing the cost of running an airport, so winners outbid the rest of the field by huge margins, confident that the extra money promised to the Centre could be recouped from user development fees payable by passengers.

The award of public assets must be through fair and competitive processes and what winners charge for their use should be properly regulated. Subject to such safeguards, NMP 2.0 could well give India’s economy the added investment momentum it needs.