National Monetization Pipeline 2.0: The latest plan’s size is impressive but its success isn’t guaranteed

The monetization of state-owned assets is a good idea in principle. It could trigger fresh capital formation that accelerates economic growth if implemented right.

This week, the government announced the second phase of its National Monetisation Pipeline (NMP), having garnered 90% of the ₹6 trillion targeted under the first. The target for NMP 2.0 is ₹16.72 trillion—over the next five years, if one goes by the official press release, or longer if one looks up the Niti Aayog report that it references.

Estimate precision is not at a premium; the press release ends with the following caveat: “The monetisation potential values assessed under NMP 2.0 are indicative and are subject to variation at the time of the actual transaction.”In any case, that sum is not the net present value of all streams of receipts over the next five years or more, but simply the aggregate of expected revenues without any discounting for the time value of money. Nor is it what state-owned assets put to work under private management are expected to yield.

It includes ₹5.8 trillion of private investment expected to materialize during the process of asset monetization.If an asset created under public ownership has been performing its function and also generating income for the government, what is the net benefit to society of placing it under private control? Asset cycling of the kind India has adopted, with asset ownership kept public but operating rights awarded to private operators for fixed terms, offers four types of benefits. One, the state might be running an operation sub-optimally and at higher cost, so efficiency gains could be made by letting a private entity take charge.