Daily Answer Writing
18 March 2021

Q) India has long dealt with capacity under utilization. Comment on the need of a national monetization plan in this context. (150 Words)

Source: The IE editorial: UNLOCKING VALUE

GS 3: Indian Economy

Approach Answer:

 

Introduction: Capacity utilization or capacity utilisation is the extent to which a firm or nation employs its installed productive capacity. In India, a lot of assets are under utilized. The PSUs and government departments such as railways sit with a lot of physical and natural resources, such as land in prime locations. This if utilized well, will help India to achieve better growth. In this context, the central government has announced an aggressive target of raising around Rs 2.5 lakh crore through asset sales.

 

National Monetization Plan:

               i. Sectors included: the government has lined up plans to monetise assets including roads, electricity transmission, oil and gas pipelines, and telecom towers, sports stadia, among others. The assets shortlisted come under the purview of eight ministries.

               ii. Planning: The Niti Aayog is in the process of preparing the National Monetisation Pipeline for FY21-24 and has asked ministries to identify and share information on the assets to be included in the pipeline.

               iii. Management: A Core Group of Secretaries for Asset Monetisation met last month to discuss the shortlist of assets identified for monetisation in 2021-22.

 

Need for a Monetization Program:

               i. Bringing in new Private investment: With subdued private sector investments, the burden of driving investment activity in the economy falls upon the public sector.

               ii. Greater multiplier effect: This would have a larger multiplier effect as under the private sector, these assets would be more productive.

               iii. Limited capacity of the government: The government’s ability to ramp-up spending is constrained by the fact that it has limited fiscal space in the COVID-19 situation.

               iv. Ease financial stress of PSUs: Monetising existing assets that are currently on the public sector balance sheet could thus help ease these financing constraints.

               v. New source for revenue for PSUs: Such a mechanism creates avenues for public sector undertakings to raise resources regularly for new investments without being overly dependent on budgetary support from the Centre.

               vi. Liberalization: This is in line with the government's aim of minimum government maximum governance.

              

Challenges:

               i. Capital investments from the proceeds from the monetisation programme should be sequestered so that they are not used for financing consumption expenditure.

               ii. Liquidity Problem: The COVID-19 situation has sucked up the excess funds from the economy. It would be a challenge to find enough body corporates and individuals to invest in such resources.

               iii. Undervaluation: Government has an ambitious plan for Privatization, selling of spectrum as well as monetization plan for this fiscal. There is a risk of undervaluation of the assets if all are put together for auction for lease or a sale.

 

Conclusion:  The success of the government’s monetisation drive is critical not just for the resources it generates for the public sector in the near term, but also for becoming a feasible option for financing a sustained public sector investment push. Thus the step is in the right direction. However, it must be seen if the optimum value is obtained in the monetization program.

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