Centre could refund costs to encourage asset monetisation by states

The NITI Aayog and DIPAM are considering a proposal to incentivise states for the costs involved in monetising and privatising assets

The central government may use the 'challenge method’ to nudge states to monetise their assets like state highways and privatise their public sector undertakings (PSUs), according to a senior government official. The NITI Aayog and the Department of Investment and Public Asset Management (DIPAM) are considering a proposal to incentivise states for the costs involved in monetising and privatising assets through central grants.
 
States with extensive lists of assets would be shortlisted, and be incentivised by reimbursing the cost involved in monetising their assets thro­ugh central grants, said the official.
 
According to the challenge method being discussed, three states that first come forward with the highest number of assets for monetisation will be incentivised through central grants. “The costs involved in the process are quite high as they include services of consultants, transaction and legal advisers as well as asset valuers, among others. This would be an adequate incentive to states as they would get proceeds from monetising assets too,” the official said.

 

A similar incentive is being considered by the central government for states that come up with proposals to privatise their PSUs, the official said. In Budget 2021-22, the FM announced that states will be incentivised for divesting their PSUs through a package of central funds. “This means that the Centre is not just hand-holding states for technical expertise and initial issues in asset monetisation, but also helping them cover financial costs,” said N.R. Bhanumurthy, vice-chancellor at Bengaluru’s Dr B.R. Ambedkar School of Economics University. There could be many states that lack such capacity to mon­etise or privatise their assets, and this step would be a “good intervention,” said Bhanu­murthy. Financial assistance will help states avoid distress sale and legal issues involved in such transactions, thus reducing the time involved, he added.

 
The soon-to-be unveiled national asset monetisation pipeline may set a target of ~3 trillion for states to monetise their assets over the next four to five years, Business Standard had earlier reported. States are being nudged by the central government and the NITI Aayog, and are being made aware of models they can use to monetise assets.
 
Last month, the Centre had organised the National Workshop on Asset Monetisation with states and union territories to brief them on the benefits of asset monetisation.