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A debate on the monetisation of unutilised and under-utilised government and public sector assets has started with the introduction of a roadmap for monetisation in the Union budget. The debate got momentum with a speech made by Prime Minister Narendra Modi in a webinar conducted by the Department of Investment and Public Asset Management. The Prime Minister is of the opinion that there is no need for the government to be in the business of business.

In the budget, the government proposed to launch a ‘National Monetisation Pipeline’ to assess the potential value of underutilised and unused government assets. To keep the whole process transparent, an asset monetisation dashboard will be created to track the progress and provide visibility to investors.

Monetisation of assets is not a new concept. A number of countries including the United States, Australia, Canada, France and China have effectively utilised this policy. In India too, the concept was suggested by a committee led by Vijay Kelkar on the roadmap for fiscal consolidation in 2012. The committee had suggested that the government start monetisation as a key instrument to raise resources for development. It asked the government to use these resources for financing infrastructure needs.

Why Monetisation: The global pandemic impacts the economy and turns it into an economic crisis. It forced the government to increase spending to provide essential relief to vulnerable sections of the society. Thus, total expenditure of the government has jumped to 34.50 trillion against the target of 30.42 trillion. On the flip side, revenue of the government is shrinking. The result: a huge rise in borrowing. As yet, total borrowing has increased by 2.3 times, from 7.96 trillion to 18.49 trillion.

An increase in the borrowing also increases interest cost. The ratio of interest payment to revenue receipts was 36.3% in 2019-20. As per revised data, it has increased to 44.5% in the current fiscal year and is projected at an all-time high of 45.3% in 2021-22. Almost half of the revenue is going towards servicing old debts. To revive the economy, capital expenditure is indispensable.

In this backdrop, the government has already launched the National Infrastructure Pipeline (NIP), with 6,835 projects in December 2019. The project pipeline has been increased to 7,400. The NIP has its own specific target and the government is committed to achieve it in the coming years. It called for a major increase in funding. Therefore, the government has increased capital expenditure to 4.39 trillion as against the budget target of 4.12 trillion in 2020-21. For 2021-22, the government has proposed to spend 5.54 trillion, which is 34.5% higher than the budgeted amount of 2020-21.

Now, the government found that monetisation of government- and public sector-owned assets would be an important financing option for new infrastructure construction. It is looking to monetise physical assets namely land, building, road, railway stations, immovable enemy properties etc.

Model for monetisation of assets: The success of monetisation will depend upon the model of monetisation opted and the effectiveness with which it is executed. The government is looking at the Real Estate Investment Trusts (REITs) model for monetisation of assets. Under REITs, the land assets are transferred to a trust providing investment opportunity for institutional investors. The National Highways Authority of India and Power Grid Corporation of India have been asked to sponsor one infrastructure investment trust to attract Development Finance Institutions and Foreign Institutional Investors.

The government has another option to lease or rent out the assets instead of going for monetisation. The first option may yield a stream of periodic income as non-tax revenue. But the government has opted for another option, which is monetisation, and it will generate one-time non-debt capital receipts.

The government expects monetisation will generate 2.5 trillion in non-debt capital revenue. The objective of asset monetisation is to raise resources for future investment into the sector. The Prime Minister has already stated that the amount garnered from monetisation will be put to public use. A pipeline monetisation plan for Indian Oil, GAIL, and Hindustan Petroleum has been drawn up by the government. It is expected that the government will raise 0.17 trillion by selling stakes in these three companies.

To handle effectively the task of monetisation of assets, the government should constitute an independent commission clothed with requisite powers and staffed by professionals and researchers to formulate and implement its monetisation initiative.

Vinay K. Srivastava is the author of ‘Privatisation of Public Enterprises in India’ and teaches at I.T.S. Ghaziabad. His Twitter handle is @meetdrvinay

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