Context

It Budget 2020, government proposed to use tax sops to nudge overseas investors towards its upcoming asset monetization schemes.

About

• Overseas investors for asset monetisation programmes:Government did not make major announcements for the infrastructure sector and, instead, proposed to use tax sops to push overseas investors towards its upcoming asset monetization programmes.
• Lower allocation to key infra sectors:A reading of the expenditure budget shows that the government’s total allocation to four key infrastructure segments—roads, airports, railways and civil aviation—is nearly 4% lower for FY21 than the revised budget estimates of ?4,64,928 crore spent on these sectors in FY20.
• Low allocation towards capital spending:According to ICRA the budgetary allocation towards capital spending for the ministry of road transportation and highways for FY21 was around 18% lower than what was required to fund the government’s flagship Bharatmala programme.
  • Even Internal and Extra Budgetary Resources (IEBR), which includes market borrowings and asset monetization, for National Highways Authority of India (NHAI)—the nodal agency that builds India’s roads— had a lower budget allocated for FY21, against in FY20.
• Focus on capital conservation: The government seems to be in capital conservation mode and is focusing on implementing existing projects already announced before than taking up any new project.
  • There is thrust on asset monetization.
  • There are plans to privatize more roads and one major port.
• Upcoming projects: Government will focus on development of 2,500km of access-control highways, 9,000km of economic corridors, 2,000km of coastal and land port roads, and 2,000km of strategic highways.
  • The Delhi-Mumbai expressway and two other packages will be completed by 2023 and the Chennai-Bengaluru Expressway will also be started.
  • Four station re-development projects.
  • 148km-long Bengaluru Suburban Transport project.
  • Expansion of National Gas Grid.

Asset Monetisation Programme

• The Department of Investment and Public Asset Management (DIPAM) is working on restructuring and asset monetisation of public sector enterprises for better management and competitiveness in the present world.
• Cabinet has approved procedure and mechanism for Asset Monetization of Central Public Sector Enterprises (CPSEs)/Public Sector Undertakings (PSUs)/other Government Organizations and Immovable Enemy Properties.
• Objective:The objective of the asset monetization programme of the Government of India is to unlock the value of investment made in public assetswhich have not yielded appropriate or potential returns so far.
• Procedure and Guidelines: Guidelines for asset monetisation programme include principles and mechanism for capital restructuring of CPSEs regarding payment of dividend, issue of bonus shares, and buyback of shares by CPSEs.
  • It shall apply to all corporate bodies where government of India has controlling interest.
  • The focus of these guidelines is on optimum utilization of funds by CPSEs to spur economic growth.
• Asset Monetization is a way of getting more cash on the balance sheet and reducing the debt-to-capital ratios that are crucial to rating agencies.
  • Sale proceeds (for example, disinvestment proceeds) can be used to acquire additional operations, stabilize costs, or revitalize existing properties, retire existing debt to increase revenue production; there are no restrictions on the use of the funds.

Mechanism

• Government is hoping to get fresh capital back into the system to develop Greenfield assets.
• The government is offering tax breaks to overseas investors, particularly sovereign wealth funds and pension funds, to invest in domestic infrastructure.
• Equity support to IIFC and NIIF: Allocation of ?22,000 crore as equity support to India Infrastructure Finance Company Ltd (IIFC) and National Investment and Infrastructure Fund (NIIF) which can leverage this fund infusion 2-3 times to invest in public infrastructure.
• Means of raising capital from the public market
  • Privatizing operating infrastructure assets.
  • Toll-operate-transfer agreements with private investors
  • Setting up infrastructure investment trusts (InvITs)
• Incentives to foreign investors:
  • 100% tax exemption to the interest, dividend and capital gains income.
• Criticism: However, experts say that this class of investors tends to buy operating assets, leaving under-construction and Greenfield projects devoid of any funding.