August 26, 2021


INDIA: Monetizing infrastructure – the devil is in the detail

BY Aditi Phadnis

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( 4 mins)
  • The government has announced a massive plan for infrastructure development but will retain ownership of assets.
  • State governments need to buy in for success.
  • If it works, it can recover lost political ground for the Modi government.

Even as India wrestles with a fear of a third wave of COVID-19, loss of employment and livelihood, and low national morale, the government launched on 23 August a massive plan of offering infrastructure to the private sector for development in the hope that this will fuel demand for credit, create jobs and add to national infrastructure. Prime Minister Narendra Modi had hinted at the plan in his 15 August address on India’s Independence Day.

The initiative is not new, and it has many downsides. It was first mooted in 2020 and found a central place in the 2021-22 budget. But a comprehensive roll-out was put off as the government struggled with public health challenges, leading many to believe it was not serious about the scheme. Some of those fears are not misplaced: while announcing the plan with all its nuts and bolts, the government has made it clear that ownership of land and the subsequent assets created will remain with it even as assets are developed and monetized by private parties in public-private partnership (PPP) mode. This is clearly to ward off inevitable political accusations that it is selling the family silver. On the other hand, private parties will continue to have to deal with the government, with all the speed-breakers this interface represents.

But the numbers are huge. The National Monetization Pipeline (NMP as it is called) estimates a monetization potential of INR6tn (USD 79.8bn) through core assets of the federal government from FY 2022 to FY 2025. The target for the current year alone isINR880bn (USD 11.8bn). If it all works out, the estimated value corresponds to 14% of the proposed outlay under the total spending on infrastructure laid out in the 2021-22 budget (INR 43tn or USD 5.7tn).

The government has clarified that this move is neither privatization nor a fire sale. Rather than draw international investment in projects (that have long gestation periods and are hard to develop because of jurisdictional problems), the government wants to get money into the assets it owns. In the last 24 months, for instance, the National Highways Authority of India (NHAI), a state-owned road building company, has managed to raise INR 170bn (USD 2.2bn) just using private parties to build roads and recover the investment money by transferring to these companies, rights to collect toll and operate booths for up to 30 years. Investment Trusts (InVits), where public land is transferred to a trust jointly administered by the government and the private sector, have also helped the government earn INR50bn (USD 674mn) over the last two years.

It is not that the Indian government is short of money. On the contrary, trade is doing well, and taxes from the Goods and Services Tax (GST) are up 33% in July over the same period last year, admittedly a low base. But Modi and his managers are acutely conscious of the drop in ratings due to the handling of the government’s pandemic efforts. That can only be fixed if the government is shown to be spending aggressively on welfare and public health facilities.

There are a host of other devils in the detail. The plan can only succeed if the state governments buy into it: in fact, if that happens, it can be scaled up substantially. But to enable that, the state governments need some sort of sweetener. It is not clear what this will be.

The canvas is huge: roads, railways, power, pipelines, civil aviation, shipping, ports and waterways, telecommunications, food and public distribution, mining, coal, and housing are covered under the plan. For starters, 15 sports stadia owned by Indian Railways, 25 airports, and 160 coal mines will be monetized. It is unclear whether Indian private capital has the appetite and the money for this kind of spending. Moreover, foreign capital will obviously face restrictions in strategic areas such as the development of railways, ports, and food. But if the plan unfolds the way it is envisaged, much of the political ground lost because of COVID-19 can be reversed.

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