Mobilisation of financial resources is a process of obtaining funds or resources from diverse sources to finance an organization’s activities, projects, or investments.
It entails acquiring and allocating financial resources in order to support operations, accomplish growth, and meet financial commitments.
Financial resource mobilization in context of Indian government refers to the different ways used by the government to generate funds to meet its expenditure requirements and finance development initiatives.
To fund its budgetary commitments and assist economic growth, the Indian government mobilises financial resources through a variety of internal and external channels.
Contents
Mobilisation of financial resources: Need
Economic Development:
- Governments can invest in economic development efforts by mobilizing financial resources.
- This covers programmes like funding transit networks, boosting utilities, fostering industrial growth, assisting small and medium-sized firms (SMEs), and attracting international investments.
- These investments have the potential to boost economic growth, create jobs, increase productivity, and raise general living standards.
Infrastructure Development:
- Adequate infrastructure is necessary for economic progress and a high standard of living.
- Mobilising financial resources enables governments to invest in infrastructure projects such as roads, bridges, railroads, airports, ports, water supply systems, and power grids.
- These initiatives boost connectivity, enable trade, attract investment, and improve the country’s overall infrastructure quality.
Funding Public Expenditure:
- Governments require funds to cover a variety of public expenditures, such as infrastructure development, healthcare, education, defence, social welfare programmes, and administrative tasks.
- Mobilising financial resources enables governments to meet their expenditure responsibilities while also providing residents with necessary public services.
Addressing Fiscal Deficits:
- Fiscal deficits occur when government spending exceed revenue. Mobilising financial resources assists governments in bridging shortfalls by borrowing money from domestic or international sources.
- This enables them to preserve fiscal stability, meet financial obligations, and continue to provide public services
Economic Stability and Crisis Management:
- Mobilising financial resources gives governments the power to respond to economic crises, natural disasters, or emergencies.
- To stabilise the economy during difficult times, governments might grant funding for disaster relief, rehabilitation, infrastructure restoration, and financial stimulus packages.
National Security and Defence:
- To maintain national security and defence capabilities, governments require financial resources.
- This involves spending on defence, modernising military equipment, supporting armed forces, and investing in intelligence and security services to ensure the nation’s safety and sovereignty.
Government Support for Social Welfare Programmes:
- Governments play an important role in providing social welfare programmes to assist vulnerable populations and promote social fairness.
- Mobilising financial resources ensures that governments have the finances they need to undertake and sustain programmes like poverty alleviation, healthcare, education subsidies, unemployment benefits, and pension plans.
Mobilisation of financial resources:Potential
- Rising income levels and population savings potential contribute to increased financial resource mobilisation via investments, banking, and capital market participation.
- India’s financial system is well-developed, with a network of banks, financial institutions, capital markets, and regulatory organisations.
- Make in India, Digital India, Start-up India, and ease of doing business reforms all aim to create a favourable investment climate, foster entrepreneurship, and attract both domestic and foreign investment.
- Crowdfunding platforms, peer-to-peer lending platforms, and online investing platforms have grown in popularity, allowing individuals and enterprises to raise funds from a larger pool of investors.
- With a population of over 1.3 billion people, India has a massive domestic market. This attracts both domestic and foreign capital by providing a large consumer base and potential investors.
Mobilisation of financial resources:Challenges
Disinvestment and Asset Monetisation:
- While disinvestment is a legitimate strategy to address the financial shortfalls that both the central and state governments are facing, the federal government reports that only eight of the 36 PSUs designated in 2016 have been disinvested.
- The national government set a disinvestment target of 1.75 lakh crore for FY22, which is more than five times what it raised in FY21.
- While it missed its aim by a wide margin due to the epidemic, efforts are underway to achieve as much of its current year target as feasible.
Low Savings and Investment Rates:
- In recent years, India’s gross domestic savings rate has been falling. According to RBI data, the gross domestic savings rate has fallen from 30.5% of GDP in 2011-12 to 29% in 2019-20.
- A lower savings rate reduces the availability of funds for investment and impedes the mobilisation of financial resources.
Non-Performing Assets (NPAs):
- The Indian banking sector has been dealing with a high percentage of non-performing assets, or loans that have not been repaid.
- Gross non-performing assets (GNPAs) of scheduled commercial banks (SCBs) fell to a six-year low of 5.9 per cent in March 2022 and could fall further to 5.3 per cent by March 2023, according to the Financial Stability Report of the Reserve Bank of India (RBI).
- NPAs have a detrimental impact on a bank’s financial health. Banks are obligated to set aside provisions when loans become non-performing, decreasing their profitability and capital adequacy. This restricts banks’ ability to mobilise financial resources for lending and investment activities.
Inadequate infrastructure:
- It is difficult to reach and service potential investors, businesses, and consumers because to limited access to physical infrastructure such as roads, power, and connectivity.
- Inadequate infrastructure also has an impact on the overall investment climate and economic growth.
Limited Capital Market involvement:
- Despite the presence of well-developed capital markets in India, retail investor involvement remains relatively low.
- According to data from the Securities and Exchange Board of India (SEBI), retail investor involvement in the equities market in 2020 was estimated to be around 3.3% of the population.
- This reduces the available pool of cash for mobilisation via equity financing and other capital market vehicles.
Informal Economy and Financial Inclusion:
- India has a sizable informal sector, which presents difficulties in mobilising financial resources.
- According to the International Labour Organisation (ILO), the informal sector employed around 81% of India’s working population in 2022.
- Many individuals and enterprises in the informal economy have limited access to formal financial services, making efficient financial resource mobilisation challenging.
Regulatory and Policy Challenges:
- The regulatory environment and policy frameworks in India can be complicated, affecting the mobilisation of financial resources.
- Difficult administrative procedures, confusing regulations, and bureaucratic roadblocks can discourage investors and stymie the flow of capital.
- Improving financial resource mobilisation requires streamlining laws and creating a more investor-friendly environment.
Mobilisation of financial resources:Government initiatives
- The government is looking to monetize huge quantities of non-core assets.
- According to the NITI Aayog, assets worth around ‘90,000 crore can be used to create money for the government.
- In addition, the government plans to establish the National Land Monetisation Corporation to monetize state-owned surplus land holdings.
- Various public sector initiatives have a large number of underutilised or unutilized assets that could be monetised in innovative ways.
- In order to produce financial resources, the Centre may explore incentivizing governments to monetize assets under tourism, state mineral resources, state highways, Municipal Corporation.
- Various tax reforms and procedure simplification measures have been implemented by the government in recent years.
- Such tax reforms, such as lower corporate tax rates, legal recognition of the taxpayer charter, use of technology to ensure frictionless interaction for assessments and appeals (faceless assessments), implementation of the Vivad Se Vishwas (VSV) scheme, and so on, have significantly improved India’s image as a tax-friendly jurisdiction.
- Aside from that, the GST regime has seen modifications in the legislation and policy, as well as automation of compliances.
- These measures, which provide ‘tax certainty’ and ‘ease of doing business,’ should result in increased tax collections for the government and a reduction in the fiscal deficit.
- India was an early adopter of unilateral steps to tax non-resident digital enterprises.
- In 2016, India implemented a digital tax in the form of the Equalisation Levy on online advertisements, which was later expanded to cover online sales of goods and provision of services.
- With the implementation of OECD Pillar One ideas, the taxation system will see a major revamp of worldwide tax laws in the coming years.
- The introduction of Pillar One would ensure the reallocation of a portion of digital corporations’ income to the countries where their users reside.
- The government may potentially reassess GST slabs based on sector maturity.
- There are several industries that are still mostly unorganised (for example, house interior design) and where the scope for GST compliance is limited, both on the consumer and supplier sides.
- Governments may consider lowering the GST slab for such industries to 5% in order to encourage their membership in the tax net.
- The Indian government has launched a number of infrastructure development initiatives, including the Bharatmala Pariyojana, the Sagarmala Project, the Smart Cities Mission, and the Pradhan Mantri Awas Yojana (PMAY).
- In recent years, the government has implemented a number of industry-friendly policies:
- PLI schemes, Remission of Duties and Taxes on Exported Products (RoDTEP), PM Gati Shakti, India Industrial Landbank, the National Logistics Policy, and the National Single Window System.
- It has positioned India as the most appealing destination for both investments and doing business.
- The NCFE launched the Financial Education Programme for Adults (FEPA) in September 2019.
- FEPA is a Financial Literacy Programme established and implemented to raise financial knowledge in the financially excluded segments of society.
- It allows them to use financial services and products more efficiently, bringing more individuals into the formal financial sector.
- The government established the Digital India plan with the goal of transforming India into a digitally empowered society and knowledge-based economy by assuring digital access, inclusion, empowerment, and bridging the digital divide.
- The plan is focused on three primary vision areas: digital infrastructure as a vital utility for every citizen, governance and on-demand services, and digital citizen empowerment.
- The ultimate purpose is to ensure that digital technologies improve the lives of all citizens, that India’s digital economy expands, that investment and employment possibilities are created, and that India develops digital technological skills.
- In August 2014, the government launched the National Mission for Financial Inclusion (NMFI), namely the Pradhan Mantri Jan Dhan Yojana (PMJDY).
- It aims to provide universal banking services to every unbanked household, with the guiding principles of banking the unbanked, securing the unsecured, funding the unfunded, and serving unserved and underserved areas.
- Through the connection of Jan-Dhan accounts with mobile and Aadhaar [Jan Dhan-Aadhaar-Mobile (JAM)], a digital pipeline has been laid for the implementation of PMJDY.
- The National Monetisation Pipeline has formalised non-tax revenue generation measures such as unlocking the investment value of public sector assets to produce cash.
- This initiative aims to aggregate the federal government’s core assets’ monetisation potential of 6 lakh crore throughout the fiscal years 2022-25.
- According to the government, the road, railway, power, oil and gas, and telecommunications industries look to be suitable to producing significant revenue through asset monetisation.
- Over the last two years, NHAI has raised 17,000 crores through the toll-operate-transfer approach, proving the drive’s initial success. However, it is still in early stages.
