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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.
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The debate got momentum with a speech made by Prime Minister 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.
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In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)