National Monetisation Pipeline (NMP)

National Monetisation Pipeline (NMP)

Subject – Economy

Context – Finance Minister Nirmala Sitharaman announced the National Monetisation Pipeline (NMP), which is expected to fetch around ₹5.96 lakh crore to the government.

Concept –

• The NMP names a list of public assets that will be leased to private investors. Only brown-field assets, which are assets that are already operational, are planned to be leased out under the NMP.
• Importantly, there won’t be any transfer of ownership from the government to the private sector when assets are leased out. The government only plans to cede control over its assets for a certain period of time, after which the assets must be returned to the government unless the lease is extended.
• The government believes that leasing out public assets to private investors will help free capital that is stuck in these assets.
• The proceeds from the NMP are expected to account for about 14% of the total outlay for infrastructure under the NIP. The government believes all this spending will boost economic activity. Analysts also believe that the government has now through the NMP found the right model for infrastructure development. The government, they say, is best suited to tackle the ground-level challenges in building infrastructure, while the private sector can operate and offer indirect finance to these projects through the NMP.

What are the risks? 

The allocation of assets owned by governments to private investors is often subject to political influence, which can lead to corruption. In fact, many in the Opposition allege that the NMP will favour a few business corporations that are close to the government.

The expected boost to economic activity due to higher government spending may also need to be weighed against the opportunity costs. For one, the money that the government collects by leasing out assets comes from the pockets of the private sector. So higher government spending will come at the cost of lower private spending. The NMP also does not address the various structural problems such as legal uncertainty and the absence of a deep bond market that hold back private investment in infrastructure.

However, it is worth noting that assets are perceived to be better managed and allocated by the private sector than by the government. To the extent that the NMP frees assets from government control, it can help the economy. There are also concerns that the leasing of airports, railways, roads and other public utilities to private investors could lead to higher prices for consumers.