2

Mar

NMP Raises Indirect Tax To 47 Percent Citizens To Pay Tn More

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Indians may soon find themselves paying more — not through headline-grabbing tax hikes passed in Parliament, but through toll booths, electricity bills, railway station fees and port charges. With the expansion of the National Monetisation Pipeline (NMP) into its second phase, the government has effectively ushered in a new asset-monetisation regime that risks increasing the overall tax burden quietly and pervasively. What is being presented as innovative, non-debt financing may in practice function as an additional layer of indirect taxation embedded into everyday life.

This marks more than a shift in infrastructure funding. It signals a structural transformation in how public revenue is raised — moving away from transparent, legislated taxation toward user charges that citizens pay daily, often without public debate or legislative scrutiny.

India already derives a significant portion of its revenue from indirect taxes. According to official data, nearly 45 percent of tax revenues come from levies such as GST and excise duties — widely regarded as regressive because they apply uniformly regardless of income. Monetisation, in effect, threatens to push this share higher, potentially beyond 47 percent. For lower-income households, that could mean nearly half of every rupee spent includes some tax or fee component. For middle-class families paying both income tax and consumption taxes, the cumulative effect may absorb much of their incremental earnings.

In practice, such a model risks feeding inflation, eroding disposable income and dampening growth.

The government calls the process “monetisation.” Citizens may experience it as extraction — revenue raised through fees rather than formally declared taxes. These charges do not require parliamentary approval in the same way tax increases do, yet they operate similarly in economic effect.

The expansion of the National Monetisation Pipeline (NMP 2.0) could quietly increase India’s indirect tax burden by embedding higher user charges into everyday services such as highways, railways, power grids and ports. While presented as innovative, non-debt financing, monetisation may function like indirect taxation, potentially pushing the share of indirect taxes beyond 47 percent of total revenue.
Monday Mooring
By Shivaji Sarkar
Since these levies affect all consumers equally, they are regressive and may disproportionately burden lower- and middle-income households. The government aims to mobilise Rs 16.72 lakh crore by leasing public assets to private operators, who are likely to raise tolls and tariffs to ensure returns. This could fuel cost-push inflation, raise living expenses and weaken consumption, competitiveness and growth. Critics argue the model risks becoming a form of “invisible extraction” rather than genuine fiscal reform.

Recent indirect tax figures underline the scale of revenue already being mobilised. GST collections for FY 2024–25 reached a record Rs 22.08 lakh crore, reflecting a 9.4 percent increase. Total indirect tax collections are estimated at Rs 18.37 lakh crore, with an indirect tax-to-GDP ratio of 4.9 percent. For 2025–26, the government projected around Rs 2.58 lakh crore in customs and Rs 3.36 lakh crore in excise duties. While customs collections declined by 7.3 percent to Rs 1.43 lakh crore till November, excise receipts grew by 7.9 percent. Revenue streams, in other words, are not collapsing.

Yet the numbers associated with NMP 2.0 are striking. In the Union Budget 2025–26, the government set a Rs 10 lakh crore target under NMP 2.0 for FY26–30 and estimated a total monetisation potential of Rs 16.72 lakh crore — roughly 2.6 times larger than the first phase. These figures alone suggest the magnitude of the shift underway.

The assets identified include highways, power transmission grids, railway stations, ports, mining blocks and pipelines — infrastructure built over decades using taxpayer funds. Under monetisation, these are to be leased to private operators. While ownership technically remains with the government and assets revert after concession periods, control, pricing power and revenue flows pass to profit-oriented entities for long durations.

For citizens, the legal distinction between ownership and control is largely immaterial. Once a private operator manages a highway or transmission line for decades, pricing decisions shift beyond direct public accountability. Infrastructure that once functioned as a public good begins to operate as a commercial revenue stream. Each use carries a charge — even though taxpayers financed its creation in the first place.

The economic logic offered by the government appears straightforward. Instead of borrowing to finance new infrastructure, the state “unlocks value” from operational assets, raises upfront resources and reinvests them, thereby avoiding a rise in fiscal deficit or debt. In accounting terms, this may seem prudent.

Economically, however, the distinction is less comforting. If the programme aims to mobilise Rs 16.72 lakh crore between FY26 and FY30, those funds must ultimately come from users. Infrastructure assets generate revenue only through tolls, tariffs and service charges. What appears in the Budget as non-tax revenue functions, in practice, as indirect taxation dispersed across millions of transactions.

The sectors involved — highways, rail networks, ports and power grids — are natural monopolies. Consumers have few alternatives. Once leased, pricing power becomes concentrated. Private concessionaires that pay substantial upfront fees must secure returns. The most straightforward method is periodic increases in tolls and tariffs. Transfer-Operate-Transfer models, by design, incentivise revenue maximisation. Efficiency gains may occur, but they seldom translate into lower charges for users. The likely outcome is steadily rising fees.

These higher charges ripple through the broader economy. Costlier highways increase freight expenses, pushing up food and retail prices. Power tariff revisions raise industrial production costs. Port and logistics charges inflate import prices. Mining fees affect steel, cement and housing costs. The impact is cumulative and characteristic of cost-push inflation.

Monetary policy offers limited relief. The Reserve Bank of India can adjust interest rates to manage demand-driven inflation, but it cannot lower toll rates or regulate port charges under long-term concession contracts. If infrastructure costs remain persistently high, inflation risks becoming structural — steadily eroding purchasing power.

The turn toward monetisation is puzzling in the context of strong tax collections and expanding compliance. If additional resources are required for capital expenditure, more progressive direct taxation or improved enforcement could distribute the burden more equitably. Instead, the system may become less transparent and more regressive even as overall revenues rise.

There are broader growth implications. Higher user charges shrink disposable incomes and weaken consumption, hitting small businesses first. Rising logistics and energy costs erode manufacturing competitiveness, compress export margins and discourage investment. Infrastructure is intended to reduce the cost of doing business; if it systematically raises costs, its developmental purpose is compromised.

An institutional risk also looms. As monetisation becomes routine, governments may rely increasingly on leasing public assets to bridge fiscal gaps. Public wealth could gradually transform into recurring revenue streams — less a recycling of assets and more a form of mortgaging. Repeated monetisation may discourage structural fiscal reforms while normalising rising user charges.

If NMP 2.0 ultimately lifts living expenses across sectors, it will be experienced not as reform but as a hidden tax burden. The challenge for policymakers is to ensure that financing innovation does not evolve into invisible extraction — and that growth, equity and transparency remain central to India’s fiscal architecture.

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