The Rs 6-trillion challenge

Aggressive asset monetisation can help push growth

The government is preparing a Rs 6-trillion asset monetisation plan that will comprise a range of assets, including national highways. The government’s intent, as described by the disinvestment secretary in an industry event on Wednesday, is clearly more ambitious than the plans discussed so far. The government has also prepared a dashboard to monitor progress and provide better visibility to investors. Prime Minister Narendra Modi had earlier talked about raising Rs 2.5 trillion through sale of assets in Central public sector enterprises. The NITI Aayog is reported to have prepared a pipeline for the government. Although the new pipeline might also include assets from the states, the increase in the scale and scope of the plan must be welcomed.

Monetisation of government assets at a higher scale will be useful and help increase growth-enhancing capital expenditure. While the Indian economy — recovering from a pandemic-induced contraction in the last fiscal year — is expected to grow at a higher rate this year, the medium-term outlook remains uncertain. The household balance sheet is stressed because of income losses and will impede a sustainable revival in consumption. Since consumption is weak and industry has a fair bit of spare capacity, a durable revival in private-sector investment looks unlikely. Thus, the only domestic source of economic revival is government expenditure. In fact, government expenditure was a big driver of growth even in the years preceding the pandemic. However, government finances are stretched and public debt as a proportion of the gross domestic product is estimated to have reached 90 per cent. Therefore, aggressive asset monetisation can help the government raise resources for increasing public investment without putting additional pressure on the Budget.
 

The need for increasing public investment, particularly in the current environment, cannot be overstated. However, large-scale asset monetisation may not be easy for the government, and the track record on this front does not inspire much confidence. For instance, the government has been consistently missing the disinvestment target. In the current year, against the target of Rs 1.75 trillion, the government has been able to raise just about Rs 8,368.56 crore so far. Monetising assets such as land and highways will certainly be far more complex than selling a minority or majority stake in state-run firms. Some previous attempts to monetise assets suffered because of the poor quality of information and disclosure standards. India also ranks poorly in terms of managing public assets. Besides, there could be other administrative challenges. For instance, land is usually provided by state governments for specific purposes at lower rates. The states may either object to the Centre’s plan to monetise such assets or demand their fair share in the proceeds. The Union government will need to handle all these issues carefully. It would do well to work with experts from the private sector to be able to make some headway. 

Successful asset monetisation at the scale envisaged will go a long way in potentially starting a virtuous cycle and significantly increasing the productive capacity of the economy through higher public investment. But the government also needs to be careful in terms of how the proceeds are used. It should not become another tool to finance the fiscal deficit. Resources raised through disinvestment and other means of asset monetisation should only be used for asset creation. Using it to fund current government expenditure, as has been the case over the years, will defeat the purpose and increase longer-term fiscal problems.