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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- Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund.
- LEAF is supported by transnational corporations (TNCs) like Unilever plc, Amazon.com, Inc, Nestle, Airbnb, Inc as well as Emergent, a US-based non-profit.
- The world lost more than 10 million hectares of primary tropical forest cover last year, an area roughly the size of Switzerland.
- Ending tropical and subtropical forest loss by 2030 is a crucial part of meeting global climate, biodiversity and sustainable development goals. Protecting tropical forests offers one of the biggest opportunities for climate action in the coming decade.
- Tropical forests are massive carbon sinks and by investing in their protection, public and private players are likely to stock up on their carbon credits.
- The LEAF coalition initiative is a step towards concretising the aims and objectives of the Reducing Emissions from Deforestation and Forest Degradation (REDD+) mechanism.
- REDD+ was created by the United Nations Framework Convention on Climate Change (UNFCCC). It monetised the value of carbon locked up in the tropical forests of most developing countries, thereby propelling these countries to help mitigate climate change.
- It is a unique initiative as it seeks to help developing countries in battling the double-edged sword of development versus ecological commitment.
- The initiative comes at a crucial time. The tropics have lost close to 12.2 million hectares (mha) of tree cover last year according to global estimates released by Global Forest Watch.
- Of this, a loss of 4.2 mha occurred within humid tropical primary forests alone. It should come as no surprise that most of these lost forests were located in the developing countries of Latin America, Africa and South Asia.
- Brazil has fared dismally on the parameter of ‘annual primary forest loss’ among all countries. It has lost 1.7 mha of primary forests that are rich storehouse of carbon. India’s estimated loss in 2020 stands at 20.8 kilo hectares.
- Between 2002-2020, Brazil’s total area of humid primary forest reduced by 7.7 per cent while India’s reduced by 3.4 per cent.
- Although the loss in India is not as drastic as in Brazil, its position is nevertheless precarious. For India, this loss is equivalent to 951 metric tonnes worth carbon dioxide emissions released in the atmosphere.
- It is important to draw comparisons between Brazil and India as both countries have adopted a rather lackadaisical attitude towards deforestation-induced climate change. The Brazilian government hardly did anything to control the massive fires that gutted the Amazon rainforest in 2019.
- It is mostly around May that forest fires peak in India. However, this year India, witnessed massive forest fires in early March in states like Odisha, Uttarakhand, Madhya Pradesh and Mizoram among others.
- The European Union’s Copernicus Atmospheric Monitoring Service claimed that 0.2 metric tonnes of carbon was emitted in the Uttarakhand forest fires.
- Implementation of the LEAF Coalition plan will help pump in fresh rigour among developing countries like India, that are reluctant to recognise the contributions of their forest dwelling populations in mitigating climate change.
- With the deadline for proposal submission fast approaching, India needs to act swiftly on a revised strategy.
- Although India has pledged to carry out its REDD+ commitments, it is impossible to do so without seeking knowledge from its forest dwelling population.
Context:-
At the recently concluded Leaders’ Summit on Climate in April 2021, Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, a collective of the United States, United Kingdom and Norway governments, came up with a $1 billion fund plan that shall be offered to countries committed to arrest the decline of their tropical forests by 2030.
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Why LEAF Coalition?
Brazil & India
According to the UN-REDD programme, after the energy sector, deforestation accounts for massive carbon emissions — close to 11 per cent — in the atmosphere. Rapid urbanisation and commercialisation of forest produce are the main causes behind rampant deforestation across tropical forests.
Tribes, Forests and Government
Disregarding climate change as a valid excuse for the fires, Indian government officials were quick to lay the blame for deforestation on activities of forest dwellers and even labelled them “mischievous elements” and “unwanted elements”.
Policy makers around the world have emphasised the role of indigenous tribes and local communities in checking deforestation. These communities depend on forests for their survival as well as livelihood. Hence, they understand the need to protect forests. However, by posing legitimate environmental concerns as obstacles to real development, governments of developing countries swiftly avoid protection of forests and rights of forest dwellers.
For instance, the Government of India has not been forthcoming in recognising the socio-economic, civil, political or even cultural rights of forest dwellers. According to data from the Union Ministry of Tribal Affairs in December, 2020 over 55 per cent of this population has still not been granted either individual or community ownership of their lands.
To make matters worse, the government has undertaken systematic and sustained measures to render the landmark Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 ineffective in its implementation. The Act had sought to legitimise claims of forest dwellers on occupied forest land.
Various government decisions have seriously undermined the position of indigenous people within India. These include proposing amendments to the obsolete Indian Forest Act, 1927 that give forest officials the power to take away forest dwellers’ rights and to even use firearms with impunity.
There is also the Supreme Court’s order of February, 2019 directing state governments to evict illegal encroachers of forest land or millions of forest dwellers inhabiting forests since generations as a measure to conserve wildlife. Finally, there is the lack of data on novel coronavirus disease (COVID-19) deaths among the forest dwelling population;
Tardy administration, insufficient supervision, apathetic attitude and a lack of political intent defeat the cause of forest dwelling populations in India, thereby directly affecting efforts at arresting deforestation.
Way Forward
Tuntiak Katan, a global indigenous leader from Ecuador and general coordinator of the Global Alliance of Territorial Communities, aptly indicated the next steps at the Climate Summit:
“The first step is recognition of land rights. The second step is the recognition of the contributions of local communities and indigenous communities, meaning the contributions of indigenous peoples.We also need recognition of traditional knowledge practices in order to fight climate change”
Perhaps India can begin by taking the first step.