Monetization – is it another mirage or a game changer?

Parijat Garg

Oh is it back? That was reaction from many upon hearing about Monetization – as they were reminded of the dreaded word that got added to our nation’s vocabulary on Nov 8th 2016.  Monetization is far from it in terms of idea, and hope it is in terms of execution and outcome too.

Government and public sector enterprises have invested heavily over several decades in building assets such as roads, highways, rails, ports, airports, power assets, telecom towers etc, however many of such brownfield assets are underutilized or inefficiently used.  Government, on the other hand, needs money to continuously invest more in infrastructure – more so to spur our economic growth towards 5 trillion $ economy. With already high fiscal deficit and challenging economic environment post covid, it is always a struggle to arrange funds for investments.

Source: NITI Aayog

Monetization is a great way to upfront values from underutilized assets without having to sell them, and partly fund the infrastructure spending. I can relate to a personal example. I had two cars, one of them sparsely used, and most certainly no use over the weekend.  I didn’t want to sell the car now as I may need it in future and I had already done the capital expenditure of buying the car.  What I did was that I got my car associated with Zoomcar’s Amigo program to monetize the asset better. It not only allowed more efficient utilization of my car, but also gave me an additional revenue stream to support the EMI payment for car loan.

The idea sounds sensible like with many policies; however, the devil is in the details.

Source: Rediff.com

Who would invest in these assets? Most of these assets are still closely associated with government machinery and enterprises. Some of these assets such as from power, gas and telecom sector are highly regulated. As observed through the tepid response to the recent privatization efforts, it is likely that the private players may see many more risks than an economic benefit of investing in such assets.

Prices of services delivered through such assets may go up, as the private player may look to make the asset more usable. Electricity prices may go up if the private sector takes control of supply, maintenance and distribution, disturbing the finances of many low-income households and small businessmen. But then no freebies mean good reliable service, most won’t mind.

We recently saw litigation against the private company responsible for upkeep and toll collection at Mumbai-Pune Expressway. The company earned nearly Rs 2400 crores more than what was originally envisaged, and is now disputedly being asked to return the money. Two issues emerge from this road monetization project – one, what is the right value of the asset and two, how would disputes be managed. Prolonged litigation with government authorities can even wipe out the entire economic gain from the project, and this would force many private players in future to refrain from getting associated with such assets.

All of the above scenarios may mean that a private party that can manage the government relations well, has funds to deploy for such large assets and can sway policies in its favour would only participate in the asset lease. Such criteria will narrow it to a handful of bidders – perhaps the alleged cronies, limiting the value the government could truly generate from these valuable assets!

A private party would always be more reassured with consistency, clarity and long-term commitment in policy matters, especially when the recent history is chequered with retrospective or retrograde surprises.

It is to be seen how the National Monetization Pipeline (NMP) rolls out – how would the balance between the interests of the party which gets the right to use, the government which owns the asset and the public at large which gets serviced through the asset, is achieved.

NMP is a great step towards collaboration with private sector in fueling growth of our country. It should not just be seen as fund raising exercise but an efficient use of the asset for citizens at large. Like in all cases, execution remains the key. A thought through process, moderate expectations of outcome and a broader consensus across political parties would greatly enhance the chances of success. Hopefully, then we will have a gamechanger at hand, not a homonymic mirage.  

Parijat Garg is an inquisitive, confused, enthusiast who dabbles in various areas, though acknowledges to know none.

Kindly note that the point of views expressed in the article are entirely the author’s personal views. IPD takes no responsibility for the same.

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