An inter-ministerial committee of the central government is set to recommend a second list of public sector assets that could be monetised to raise resources which could then be ploughed back into fresh investments.
Reportedly, the proposal entails leasing out public sector assets such as gas pipelines of GAIL, mobile towers of public telecom operators like BSNL and MTNL, and ATMs of state-owned banks to private sector players. Ownership of these assets, though, would continue to vest with the PSUs/government.
Earlier, the first list of assets approved by the inter-ministerial committee included 12 sports stadiums, NTPC s Badarpur plant, ITDC s Ashoka hotel, among others. Coming at a time when private sector investments remain subdued, the move to monetise and recycle public sector assets is welcome. Fresh public investments could gradually help crowd-in private investments.
Over the past few years, despite several initiatives of the government, private sector investments have remained sluggish. As a result, the burden of driving investments has fallen on the public sector. But with limited fiscal space, the ability of the general government (Centre and states) to boost investments is severely limited.
In such circumstances, asset recycling and monetisation is an innovate way for the public sector to raise resources. At its core, the idea essentially involves giving funds back to the company by leasing an asset, brown-field projects where the process will be easier, to private players for a long term. The transactions could be structured in various ways – large upfront payments, with small or no annual payments, or a small upfront payment, and regular annual payments.
This, it is hoped, would be lapped up by pension and sovereign funds who are looking for a fixed income stream with limited execution risk. The National Highway Authority of India (NHAI) has been particularly successful in raising resources through this approach.
It has recently raised Rs 9,400 crore by transferring operation of assets to private entities for a specified time period. Such a mechanism allows PSUs to raise money for fresh investment without being dependent on budgetary support or borrowings. Revenue raised through this route, which should be ring-fenced lest it is squandered away, can be then ploughed back into roads, ports, airports, etc. At the current juncture, this would compensate for the inability of the private sector to fund infrastructure.
In her maiden budget, Finance Minister Nirmala Sitharaman had reiterated the government s intention to invest Rs 100 lakh crore in infrastructure over the next five years. Central to achieving this is revival of the private investment cycle. But an over-leveraged private sector, at the current juncture, is unlikely to ramp up investments in the short term, leaving the burden on the public sector.
An increase in public sector investments could over time help revive the moribund investment cycle. This list of assets must be followed up by a more ambitious, structured programme that seeks to monetise land and other assets of the public sector.