Finance Minister Nirmala Sitharaman will unveil the last full Budget of the Modi government 2.0 for the fiscal year 2023-24 on February 1. The government is committed to capital spending especially in infra projects. The spending on capital expenditure by the government in the last two fiscal years confirms this. Capital expenditure in FY22 was increased by 8.67 per cent against the annual Budget Estimate of Rs 5.54 lakh crore. The actual spending was Rs 6.02 lakh crore.


Budget of 2022 also reflects the affirmation of the government to spur economic growth by investing in infrastructure. The annual Budget Estimate of the current fiscal has been increased by 35.4 per cent over that of 2021-22. The government capital expenditures, according to the CGA, has shown a growth of 63.4 per cent during the first eight months of the current fiscal. It is significantly elevated compared to corresponding growth rates in recent years.


Thus the Budget would likely be, as expected, growth oriented through an increased capital expenditure on infra projects and rural development for creating external and domestic demand in the market, supporting the manufacturing sector to sustain the growth of the country and ultimately following the path of fiscal consolidation. The government is looking forward to financing schemes to keep infrastructure building moving. Assets monetisation might be one of the options.


Asset monetisation known as asset or capital recycling is a widely used business practice in the world. The Budget of 2021 states that monetising operating public infrastructure assets is a very important financing option for new infrastructure construction. The government is seeking to collect Rs 5.96 lakh crore through leasing several assets to the private players over a four-year period ending in 2024-25 in order to help the national infrastructure pipeline (NIP). The NIP has a projected infrastructure investment of around Rs 111 lakh crore. 


National Monetisation Pipeline (NMP)


Asset monetisation, according to NITI Aayog, entails a limited period licence and/or lease of an asset owned by the government or public authority, to a private sector entity for a periodic consideration. The finance minister had announced in budget-2021 that a national monetisation pipeline will be created. Accordingly, India had launched the national Asset Monetisation Pipeline (NMP) of central ministries and CPSEs on August 23. 2021 to fund its ambitious infrastructure projects.


The pipeline has been developed by the NITI Aayog in discussion with infrastructure line ministries. The Union Budget of 2021 states that proceeds from the monetisation of assets will be deployed for the creation of new infrastructure. The government is looking to realise Rs 0.88 lakh crore in FY22, Rs 1.62 lakh crore in FY23, Rs 1.79 lakh crore in FY24, and Rs 1.678 lakh crore in FY25 from monetisation.


The objective of monetisation of assets is to unlock the value of investments made by the government in public sector assets by tapping private sector capital and efficiencies, which have not yielded potential returns so far, creating hitherto unexpected sources of income for the company and its shareholders, and contributing to a more accurate estimation of public assets which would help in better financial management of government resources over time, which can thus be leveraged for infrastructure creation.


Monetisation of Assets So Far


The asset monetisation goal of the financial year 2021-22 was surpassed as the government realised Rs 0.96 lakh crore. The nudging by the government has proven to be successful as the monetization pipeline and targets were announced in late august 2021.     


However, the government’s ambitious national monetisation pipeline is experiencing a slower pace in the current fiscal. The government is likely to miss the national monetization pipeline target for this year. As per media reports, the government has realised only Rs 0.34 lakh crore so far from asset monetisation against the target of Rs 1.62 lakh crore in the current fiscal. It is expected that a shortfall of Rs 0.38 lakh crore in fetching the overall asset monetization target. The total realisation is expected to be 76-77 per cent of the target.  


The monetisation plan is yet to realise its full potential as a few ministries are still facing challenges in implementing the monetisation plan. It is reckoned that the ministry of railways, ministry of power, the ministry of civil aviation and the ministry of oil and gas are likely to fail the target. These ministries have been asked to hit the targets by identifying additional asset classes.


Monetisation of the asset of railways might be one of the key agenda in the upcoming budget. The railway ministry had set a target of realising Rs 0.17 lakh crore through monetisation of railway assets in 2021-22. However, the target could not be achieved due to the apathy of the private sector. The target of Rs 0.57 lakh crore for FY23 is likely to be brought down to Rs 0.25 lakh crore as only two months are left of the current fiscal and the ministry has not been able to monetise its assets.


Monetisation Proceeds


An office memorandum of the DIPAM, dated 08.03.2019 annexure-1, pare 4.4.3 states that the amount realised from asset monetisation, including identified non-core assets of the CPSEs under strategic disinvestment and divestment of the enemy properties under the custody of the CEPI, will be treated as disinvestment proceeds.


However, the proceeds realised from monetisation of assets did not go into the kitty of the Union Government as, according to an article of the Business Standard, these proceeds have been accumulated by leasing out operational assets of the Central Public Sector Enterprises. Nonetheless, if monetisation proceeds are added to disinvestment proceeds, then they would get additional fiscal space.


In addition, the government should create a dedicated asset monetisation fund (AMF) at the central, state and regional level and operationalise single window credit guarantee facilities to speed up the monetisation process and remove the causes that slow down the asset monetisation process. It will enable the government to generate additional resources for their infrastructure investment. The government should constitute a core committee to monitor the progress of asset monetisation and coordinate across ministries to speed-up the monetisation programme.


Dr Vinay K Srivastava teaches at ITS Ghaziabad


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