Finance Minister Nirmala Sitharaman on Monday launched the National Monetisation Pipeline (NMP) plan of Rs 6 lakh crore between financial year 2021-22 and 2024-25. She listed out the government's infrastructure assets to be sold over the next four-years.
The Finance Minister said that assets being given out under the National Monetisation Pipeline will still be owned by the government, and will be returned to the government after a period of time. She added that the NMP will help improve liquidity to increase expenditure in infrastructure by the government.
The Union Budget 2021-22 laid a lot of emphasis on asset monetisation as a means to raise innovative and alternative financing for infrastructure. In her Budget speech, public expenditure in infrastructure has to be increased and monetising operating public infrastructure assets was a very important financing option for new infrastructure construction.
Assets worth Rs 20,800 crore from the aviation sector will be monetised, while assets worth Rs 35,100 crore will be monetised from the telecom sector under the NMP plan. Apart from this, the government will monetise assets worth Rs 150,000 crore from the railway sector, Rs 160,000 crore from the roads sector and Rs 45,200 crore from the power transmission sector respectively.
The asset monetisation pipeline will rejuvenate the economy and provide a fillip to growth impacted by the pandemic.
1. Shore up revenues of government and PSUs
The economic devastation caused by the pandemic has impacted the financial health of the central government and the public sector units owned by it. The GDP contracted by 7.3% in FY 2020-21. The fiscal deficit shot upto 9.3% of GDP as revenue dwindled impacted by lockdowns and the government had to beef up expenditure to provide relief to the poor.
It is a well known fact that most state and central public sector units are facing a financial crisis. They are reeling from massive debt and losses. This is acting as an impediment to their growth and disinvestment plans.
The number of loss-making PSUs in India has increased from 79 in 2015-16 to 84 in 2019-20 while the number of profit-making PSUs has decreased from 175 in 2016-17 to 171 in 2019-20, said Minister of State (MoS) for Finance Dr Bhagwat Karad in the Lok Sabha during this monsoon session.
Out of these, 30 CPSEs were incurring losses continuously with cumulative losses of Rs 1,06,879 crore, he added.
Asset monetisation would result in additional revenues for government / PSUs which will help improve their P&L accounts and balance sheet. It will improve the capital base of these companies. Improvement in financials could lead to an upgrade of some of these companies, and make them healthier to face competition.
2. Help reduce budgetary support for PSUs
The central government each year provides some amount for central PSUs to meet their capital expenditure requirements, debt repayments to international organisations, debt servicing (interest + principal payments), VRS schemes, reliefs and concessions, special packages etc. For example, the government has announced a package of Rs 70,000 crore to revive the beleaguered MTNL and BSNL.
With an improvement in financial health, some of the budgetary support may no longer be required and reduced gradually over the years, relieving the central government from this burden. This will lead to an improvement in the financial as well as fiscal position of the central government. This expenditure could be utilised elsewhere like in social welfare projects.
3. Provide funds for new infra creation
Money raised could be used to create new assets, which would in turn lead to job creation. This would provide a big fillip to investments thus bolstering growth. Investments as a percentage of GDP has been on the decline as the private sector is still waiting for revival of demand post the pandemic and the public sector is short of resources.
The NMP could revive investments in the economy and help India recover from the slowdown inflicted by COVID-19. This could result in a repeat cycle of monetisation, as construction risk is taken over by the PSUs. The private sector gets a ready-made / de-risked asset and it need not fret over environmental clearances, risk of delay in projects, litigation etc.
4. Spillover effect on jobs & investments
The value received as consideration will unlock greater value for the government / PSUs. This will provide a boost to the Gati Shakti Plan
under which the government has announced a Rs 100 lakh crore infrastructure creation plan. It is an innovative method of public private partnership which could release the animal spirits of the corporate sector.
Infrastructure creation / take over of assets by the private sector has a multiplier effect on the economy. The languishing / underutilised assets will be put to optimum use by the private enterprise and create new employment opportunities.
The Finance Minister added that it is important that India recognises that the time has come for making the most out of our assets and we hope the plan is a grand success.