From UPSC perspective, the following things are important :
Prelims level : Asset Monetisation Pipeline
Mains level : Paper 3- Asset monetisation
The article discusses the government’s proposal to monetise assets and proposes the idea of an independent commission to carry out the task of monetisation.
Roadmap for monetisation of asset: National Monetisation Pipeline
- Finance Minister had introduced a roadmap for monetisation of asset in the Union Budget.
- In the budget, the government proposed to launch a ‘National Monetisation Pipeline’ to assess the potential value of underutilised and unused government assets.
- 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.
- The global pandemic forced the government to increase spending.
- 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.
- As a result, total borrowing has increased by 2.3 times, from ₹7.96 trillion to ₹18.49 trillion.
- An increase in 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.
National Infrastructure Pipeline
- 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.
- 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.
Model for monetisation of asset: REITs
- 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 government has another option to lease or rent out the assets instead of going for monetisation.
- 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.
- 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.
Consider the question “What is asset monetisation? What strategy should be followed by the government in the monetisation of assets?
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.
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