Will India's monetization program ever work?

The Indian government has announced it wants to raise $81 billion (€68.5 billion) by monetizing government-owned assets such as land, roads and stadiums. It wants to do this in four years between 2022 and 2025 under the National Monetization Pipeline (NMP) program. 

The main aim behind this is to unlock the value in brownfield projects and bring in private-sector actors by transferring the revenue rights to them. Brownfield projects mean some work has already been done, so investors won't have to start from scratch. 

The government has made it clear that it will not transfer ownership of the assets to the private players and will be using the funds generated for infrastructure creation across the country.

While announcing the scheme, Finance Minister Nirmala Sitharaman said that "by bringing in private participation you will be able to ensure further investment in infrastructure building."

Can the private sector do it better?

Basically, the government is transferring revenue rights to private parties for four years in return for upfront money. The government is assuming that the private sector will be able to run and make money out of these projects where the government failed to do so. 

The central government has been very vocal about privatization, and in February this year, Prime Minister Narendra Modi said during a webinar that "when a government engages in business, it leads to losses. The government is bound by rules and the lack of courage to take bold commercial decisions."

"It is the government's duty to support enterprises and businesses. But it is not essential that it should own and run enterprises," he added.

Time to act

The Indian government has been dealt a serious blow from the COVID pandemic and needs money to run its public welfare programs. Asia's third-largest economy contracted by 7.3% last year after the government implemented the strictest national lockdown in the world. 

The government tried to sell off some of the sick public-sector units or companies in which it had large stakes. But it failed because of poor market conditions.

A list of big assets 

New Delhi has come up with a huge list of assets including 15 railway stations and 25 airports. There are also 160 coal mining projects, 31 projects in nine major ports and two national stadiums. 

In all, there are 20 asset classes involved in this scheme. 

Still many are skeptical. "This is not the solution to the current problem of the country," economist Arun Kumar told DW.

In a telephone interview, he said that the country needs more demand to be generated and a stronger public sector so that it can serve the people. "If the private sector takes control of most of the infrastructure in the country, the poor will not be served."

Kumar added that it was not the right time to monetize these assets, as the returns were not great, and this would help the private sector get cheap assets.

More information required

In a note to clients, ratings agency Care Ratings said that more questions needed to be answered for this ambitious plan to work.

It said it was unclear how private parties would react to public-private partnership (PPP) arrangements, considering that the assets in question would have to be handed back to the government after four years. 

Care Ratings also warned that it was not known how much appetite there was in the market for such large issuances, saying that while the stock market was on a roll right now, its future development was uncertain.

New Delhi has a long history of failed programs, such as a goods and services tax, demonetization, the "Make in India" scheme and the way it handled the economy even before COVID came knocking on its door. Observers will now be looking very closely at how the national monetization program will be handled.