Budget 2021 | What is asset monetisation?

Finance Minister Nirmala Sitharaman is set to present the NDA government’s budget for FY22 on February 1 amid the Covid-19 pandemic which caused an unprecedented economic slowdown in the country.

The budget comes in the backdrop of a record economic contraction in the Indian economy of 7.7 per cent. Sitharaman has promised a budget like ‘never before’ to the people of India.

Before we see what the FM has in store for the country, it is important to know key terms in the annual financial exercise. One of them is asset monetisation.

What is asset monetisation?

Asset monetisation is the process of creating new sources of revenue for the government by unlocking the economic value of unutilised or underutilised public assets.

A public asset is any property owned by a public body, tangible or intangible. These include roads, railways, stations, pipelines, mobile towers etc. or financial assets like shares in Central Public Sector Enterprises (CPSEs), securities and dividends.

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To understand this concept, it is important to know what an underutilised or an unutilised asset is. A sub-optimally utilised or unutilised asset is one that is not using its maximum potential which could otherwise be attained by exploiting it commercially at a market valuation. For example, if a government asset is deriving a net value of Rs 50 crore but has the potential to earn Rs 500 crore, it will come under this category.

The government’s asset monetisation programme aims to correct this anomaly and get the returns it invested in these public assets, and create hitherto unexplored sources of income.

It has been the Centre’s efforts to attract the private sector in this process, to help explore the real asset value through business ideas and technology. Experts deem asset monetisation as an effective way to generate revenue for the government but believe that it is still hugely untapped.

The government does not need to sell assets and it does well to protect assets which give healthy returns. This process is only to innovate and enrich an asset which has largely been unresponsive in terms of revenue.

Reports suggest that FM Sitharaman’s budget will set a more aggressive divestment and asset monetisation programme in FY22, as it needs to raise funds to meet heightened expenditure this year.