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NITI bats for tax breaks to achieve monetization goal

GS Paper 3:

Topics covered: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

 

Context: Recommendation made by NITI AYOG pertaining to the monetization plan unveiled by the government recently 

More on this:

  • The AYOG has also recommended bringing such Trusts (InvITs) under the ambit of the Insolvency and Bankruptcy Code (IBC) to provide greater comfort to investors. (Presently, such trusts are not considered ‘legal persons’ in India, this inhibits investment from potential investors into this. However, investments made is protected under the SARFAESI act and the Recovery of Debts and Bankruptcy Act, 1993)
  • The above recommendation if implemented will help in expanding investor base, a critical element for the success of NMP.
  • What is needed to implement these changes suggested?
  • Policy changes should be notified by the government. Ex: Taxation breaks
  • Coordination between the regulators concerned
  • How will the recommendations benefit the InvITS? The changes recommended will provide a structured opportunity for investors to invest in infrastructure assets with predictable cash flows, while the asset owners can raise upfront resources against future revenue cash flows from those assets, which in turn can be deployed in new assets or used to repay debt.

Figure: Major recommendations of the AYOG pertaining to National Monetization Pipeline (NMP)

About NMP

The Centre launched the National Monetization pipeline (NMP) in an effort to list out the government’s infrastructure assets to be sold over the next four-years.

Key features:

  1. The four-year National Monetization Pipeline (NMP) will unlock value in brown-field projects by engaging the private sector, transferring to them the rights but not the ownership in projects.
  2. Components: Roads, railways and power sector assets will comprise over 66 per cent of the total estimated value of the assets to be monetized, with the balance coming from sectors including telecom, mining, aviation, ports, natural gas and petroleum product pipelines, warehouses and stadiums.

Objective of the programme:

  1. To unlock the value of investments in brown-field public sector assets by tapping institutional and long-term capital, which can thereafter be leveraged for public investments
  2. To enable ‘Infrastructure Creation through Monetization wherein the public and private sector collaborate, each excelling in their core areas of competence, so as to deliver socio-economic growth.

The Framework:

Currently, only assets of central government line ministries and CPSEs in infrastructure sectors have been included.

  • Monetization through disinvestment and monetization of non-core assets have not been included in the NMP.

The framework for monetization of core asset monetization has three key imperatives:

Estimated Potential:

Considering that infrastructure creation is inextricably linked to monetization, the period for NMP is co-terminus with the balance period under National Infrastructure Pipeline (NIP) i.e for FY 2022-2025.

NMP is indicatively valued at Rs 6.0 lakh crore for 4 years.

Significance of the scheme:

Asset Monetization needs to be viewed not just as a funding mechanism, but as an overall paradigm shift in infrastructure operations, augmentation and maintenance considering the private sector’s resource efficiencies and its ability to dynamically adapt to the evolving global and economic reality.

  • Such new models will enable not just financial and strategic investors but also common people to participate in this asset class thereby opening new avenues for investment.
  • Hence, the NMP document is a critical step towards making India’s Infrastructure truly world class.

Challenges to NMP:

  1. Lack of identifiable revenue streams in various assets.
  2. Level of capacity utilization in gas and petroleum pipeline networks.
  3. Dispute resolution mechanism.
  4. Regulated tariffs in power sector assets.
  5. Low interest among investors in national highways below four lanes.
  6. The lack of independent sectoral regulators.

What is InvIT model?

It is a Collective Investment Scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.

  • The InvITs are regulated by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

 

Prelims link

  1. What is NMP?
  2. What the salient features of NMP?
  3. Who is the implementing ministry for this project?

Mains link

Issues and challenges pertaining to the NMP and possible solutions to address them