Context: Indian Railways’ is making efforts to enhance the use of its valuable lands near railway stations, the decision has been made to replace ageing, sparsely distributed buildings with multi-story structures. This initiative is a crucial component of their mission to transform major railway stations and their surrounding areas into vibrant urban centres.
About Asset Monetisation
- This approach, often referred to as asset or capital recycling, involves unlocking the untapped potential of public assets that have been previously underutilised or unused.
- With a projected investment of ₹111 lakh crores from FY20 to FY25 as part of the National Infrastructure Pipeline (NIP), approximately 15-17% of this funding is expected to come from innovative strategies like asset monetization.
- It’s important to note that asset monetization is distinct from privatisation and asset slump sales. Instead, it represents a structured partnership with the private sector, governed by defined contractual frameworks.
The benefits of asset monetization are manifold.
- It allows for diversified resource mobilisation, providing long-term capital for substantial infrastructure development, which is especially critical in the post-Covid-19 economic recovery.
- Furthermore, it enhances financial leverage and overall value for both companies and governments with significant stakes in these assets. For instance, Indian Railways possesses 0.51 lakh hectares of vacant land assets that could be put to more productive use.
- Efficiency gains are another advantage, with the private sector often delivering superior operational efficiencies for underutilised infrastructure assets. This is exemplified by non-core assets like residential buildings and office spaces with BSNL and MTNL.
- Other benefits include sustained economic growth through improved infrastructure, generating employment opportunities, and enhancing overall quality of life through investments in core assets and social infrastructure such as schools and hospitals.
- Financial challenges include the need for a sustained and robust asset pipeline to attract investors, as well as identifying revenue streams and revenue transfer mechanisms for different infrastructure assets. There is also the concern that leasing public utilities to private investors could lead to higher prices for consumers.
- Regulatory challenges encompass the absence of independent sectoral regulators with domain expertise, structural issues like legal uncertainty, and the absence of a robust bond market hindering private investment in infrastructure. Inefficient dispute resolution mechanisms are also a hindrance.
- Other challenges involve the reluctance of states to participate despite holding substantial assets, uncertainties posed by factors like Covid-19, climate-related disasters, and economic transformation during Industrial Revolution 4.0, as well as concerns about political influence and corruption.
- The National Monetization Pipeline (NMP) with sector-specific plans has been introduced to assist the private sector in planning their fundraising for brownfield asset inventory with potential financing opportunities.
- Additional steps include building the capacity and expertise of public authorities, ensuring systematic and transparent asset allocation, working closely with states to leverage assets for resource mobilisation, and developing robust brownfield models and frameworks.
- Flexibility in contracts, strong dispute resolution mechanisms, and innovative regulatory frameworks such as InvITs and REITs are recommended to encourage participation from various investor classes, including global pension funds, sovereign wealth funds, and retail investors, similar to the successful model of POWERGRID Infrastructure Investment Trust (PGInvIT).