An effective plan to monetize government assets

With the introduction of the roadmap for monetization in the central budget, the debate on monetization of unused and underutilized public and public sector assets began. The debate was sparked by a speech by Prime Minister Narendra Modi on a webinar hosted by the Department of Investment and Public Asset Management. The Prime Minister was of the opinion that there should be no government in business.

In the budget, the government has proposed to launch a ‘National Monetization Pipeline’ to assess the potential value of unused and unused government assets. The Asset Monetization Dashboard is created to keep the whole process transparent, track progress and provide visibility to investors.

Monetization of assets is not a new concept. Many countries, including the United States, Australia, Canada, France and China, have used this approach effectively. In India, too, a committee headed by Vijay Kelkar on the roadmap for economic integration in 2012 suggested the concept. The committee suggested that the government should start monetization as an important tool to increase resources for development. It asked the government to use these resources for infrastructure needs.

Why make money: The global pandemic affects the economy and turns it into a financial crisis. This forced the government to increase spending to provide much needed relief to the weaker sections of society. Thus, the total expenditure of the government increased 34.50 trillion against the target 30.42 trillion. On the flip side, government revenue is declining. The result: a huge increase in borrowing. So far, total loans have increased 2.3 times From 7.96 trillion 18.49 trillion.

The increase in borrowing also increases the cost of interest. The interest payment ratio for revenue receipts in 2019-20 is 36.3%. According to the revised data, it has risen to 44.5 per cent in the current financial year and is projected at an all-time high of 45.3% in 2021-22. Nearly half of the revenue is going towards paying off old debts. To revive the economy, capital expenditure is essential.

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

Now, the government has found that raising money through public and public sector-owned assets can be an important financing option for the construction of new infrastructure. It is looking to make money on physical assets such as land, building, road, railway stations, fixed enemy assets and so on.

Model for asset monetization: The success of monetization depends on the chosen model of monetization and the effect it has on implementation. The government is examining the Real Estate Investment Trust (REIT) model for raising assets. Under REITs, land assets are transferred to a trust that provides investment opportunity to the company assets. The National Highways Authority of India and the Power Grid Corporation of India have sought to sponsor an infrastructure investment trust to attract developing financial institutions and foreign institutional investors.

The government has another option to lease or rent out assets instead of going for money. The first option gives a periodic income stream as non-taxable income. But the government has chosen another option, which is money making, and it produces one-time non-debt capital receipts.

The government hopes that monetization will be produced 2.5 trillion in non-debt capital income. The goal of asset monetization is to mobilize resources to invest in the sector in the future. The Prime Minister has already stated that the money earned by making money will be put to public use. The government has drawn up a pipeline monetization plan for Indian Oil, GAIL and Hindustan Petroleum. The government is expected to raise 0.17 trillion by selling stake in these three companies.

To effectively manage the work of asset monetization, the government should set up an independent commission with the necessary powers and appoint experts and researchers to design and implement its monetization program.

Vinay K. Srivastava, India, privatization of public enterprises, “and its author taught in Ghaziabad. His Twitter handle is meetdrvinay

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