It makes sense to extract value from underutilized public assets (On Asset monetisation)

Source: Live Mint

Relevance: Resource Mobilisation

Synopsis: National Monetisation Pipeline (NMP), should be welcomed.

Background

• Read here: National Monetisation Pipeline Project – Explained, pointwise

The Rationale behind Asset Monetisation

• Additional Fiscal resources for states: Public assets like roadside parking slots, municipal grounds and advertising surfaces and parade grounds of police and defence services remain unused for the most part of the year. Revenue-starved governments across the country could find new resources to finance higher demands on public expenditure.
  • For instance, imposing parking charges on a mere 1.5% of Bengaluru city roads could add 5% to its annual budget
• Improved Governance and Public services: Corruption and inefficiency are often blamed for the poor state of public services like policing, health, education, transport and so on. However, cash-strapped governments are the single biggest reason for the poor public delivery of services. With increase in public finances, governance and public services will improve substantially.

Suggestions/measures

• To control corruption and cronyism (giving undue favors to friends and associates), policy design should be corruption-resistant, insist on transparency, promote market competition and punish wrong-doers.
• NMP implementation should allocate assets in a way that the lessee has a natural incentive to maintain public assets.
• Recommendations by NITI Aayog: NITI Aayog has made the following recommendations to make NMP a success,
  • First, the government should give income tax breaks to attract retail investors into instruments such as Infrastructure Investment Trusts (InvITs). More tax-efficient and user-friendly mechanisms like allowing tax benefits in InvITs as eligible security to invest under Section 54EC of the Income Tax Act, 1961, are important for initiating retail participation in the instruments.
  • Second, it also suggested bringing in policy and regulatory changes to scale up monetisation instruments such as InvITs and Real Estate Investment Trusts (REITs). Section 54EC allows taxpayers to offset long-term capital gains from transactions in immovable properties through investments in bonds issued by some government-backed infrastructure firms.
  • Third, it suggested expanding the investor base, which is a critical element for the NMP.
  • Fourth, it also called for bringing such trusts within the ambit of the Insolvency and Bankruptcy Code (IBC) to provide greater comfort to investors.