Blog

TOPIC : GS 3 Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Asset monetisation — execution is the key

What is the news?

  • The Government has announced an ambitious programme of asset monetisation. It hopes to earn 6 trillion in revenues over a four­year period.
  • At a time when the Government’s finances are in bad shape, that is money the Government can certainly use

What is Asset Monetisation?

  • In asset monetisation, the Government parts with its assets such as roads, coal mines for a specified period of time in exchange for a lump sum payment.
  • The end of the period, the assets return to the Government which is unike in Privatisation, no sale of government assets is involved.
  • By monetising assets it has already built, the Government can earn revenues to build more infrastructure.
  • Asset monetisation will happen mainly in three sectors roads, railways and power and  assets to be monetised include airports, ports, telecom, stadiums and power transmission

Under-utilised assets

  • Making the necessary investment, the private player can reap the benefits of a higher level of cash flows.
  • The difference in cash flows under Government and those under private management is a measure of the improvement in efficiency of the assets.
  • This is a win­win situation for the Government and the private player. The Government gets a ‘fair’ value for its assets.
  • The private player gets its return on investment and economy benefits from an increase in efficiency. Monetising under­utilised assets thus has much to commend it.

Another way of going about it

  • The other form of monetisation the Government has indicated is creating Infrastructure Investment Trusts (InvIT) to which monetisable assets will be transferred.
  • InvITs are mutual fund­like vehicles in which investors can subscribe to units that give dividends.
  • The sponsor of the Trust is required to hold a minimum prescribed proportion of the total units issued .
  • In the InvIT route to monetisation, the public authority continues to own the rights to a significant portion of the cash flows and to operate the assets

Conclusion

  • Public authority has inherent advantages on the funding side.
  • In general, the economy is best served when public authorities develop infrastructure and monetise these.
  • Monetisation through InvITs is likely to prove less of a problem than the PPP route.
  • Better off monetising under­utilised assets than assets that are well utilised.
  • To ensure proper execution, there is a case for independent monitoring of the process.
  • The Government may set up an Asset Monetisation Monitoring Authority staffed by competent professionals.
  • The authority must put all aspects of monetisation under the scanner valuation, the impact on price charged to the consumer, monetisation of under­utilised versus well­utilised assets, the experience across different sectors, etc.  and document the lessons learnt.

 

Mains Question

Why the Government’s plan needs an Asset Monetisation Monitoring Authority to evaluate the execution?

 

Sources : https://www.thehindu.com/opinion/lead/asset-monetisation-execution-is-the-key/article36144666.ece

 

PRELIMS PUNJCHERS

  1. Deepor Beel

It is located to the south-west of Guwahati city, in Kamrup Metropolitan district of Assam, India. It is a permanent freshwater lake, in a former channel of the Brahmaputra River, to the south of the main river. It is also called a wetland under the Ramsar Convention which has listed the lake , as a Ramsar Site for undertaking conservation measures on the basis of its biological and environmental importance. Considered one of the largest beels in the Brahmaputra valley of Lower Assam, it is categorised as representative of the wetland type under the Burma monsoon forest biogeographic region.

The Dipor Bil is reported to provide, directly or indirectly, its natural resources for the livelihood of fourteen indigenous villages located in its precincts. Wild Asian elephants , leopard, jungle cat and the protected barking deer, Chinese porcupine and sambar are found in the beel.

Sources : https://www.thehindu.com/sci-tech/energy-and-environment/assams-deepar-beel-wildlife-sanctuary-breathes-easy-after-eco-sensitive-zone-notification/article36133229.ece

 

 

  1. Financial Stability and Development Council (FSDC)

It is an apex-level body constituted by the government of India. The idea to create such a super regulatory body was first mooted by the Raghuram Rajan Committee in 2008. Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up such an autonomous body dealing with macro prudential and financial regularities in the entire financial sector of India.

An apex-level FSDC is not a statutory body. The recent global economic meltdown has put pressure on governments and institutions across the globe to regulate their economic assets. This council is seen as India’s initiative to be better conditioned to prevent such incidents in future. The new body envisages to strengthen and institutionalise the mechanism of maintaining financial stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential regulation’ of economy. No funds are separately allocated to the council for undertaking its activities. The meeting of the council entrusted with enhancing coordination among financial sector regulators  RBI, SEBI, IRDA and PFRDA assumes significance.

Sources : https://www.thehindu.com/business/Economy/government-to-ease-path-for-asset-monetisation/article36142055.ece

 

  1. Eco-Sensitive Zone

Eco-Sensitive Zones (ESZs) or Ecologically Fragile Areas (EFAs) are areas in India notified by the Ministry of Environment, Forests and Climate Change (MoEFCC), Government of India around Protected Areas , National Parks and Wildlife Sanctuaries. The purpose of declaring ESZs is to create some kind of “shock absorbers” to the protected areas by regulating and managing the activities around such areas. They also act as a transition zone from areas of high protection to areas involving lesser protection.

The Environment (Protection) Act, 1986 does not mention the word “Eco-Sensitive Zones”. Section 3(2)(v) of the Act, says that Central Government can restrict areas in which any industries, operations or processes or class of industries, operations or processes shall not be carried out or shall be carried out subject to certain safeguards. An ESZ could go up to 10 kilometres around a protected area as provided in the Wildlife Conservation Strategy, 2002. Moreover, in case where sensitive corridors, connectivity and ecologically important patches, crucial for landscape linkage, are beyond 10 kilometres width, these should be included in the Eco-Sensitive Zones. Further, even in the context of a particular Protected Area, the distribution of an area of ESZ and the extent of regulation may not be uniform all around and it could be of variable width and extent

Sources : https://www.thehindu.com/sci-tech/energy-and-environment/assams-deepar-beel-wildlife-sanctuary-breathes-easy-after-eco-sensitive-zone-notification/article36133229.ece

 

  1. A black hole

It is a region of spacetime where gravity is so strong that nothing no particles or even electromagnetic radiation such as light can escape from it. The theory of general relativity predicts that a sufficiently compact mass can deform spacetime to form a black hole. The boundary of no escape is called the event horizon. Although it has an enormous effect on the fate and circumstances of an object crossing it, according to general relativity it has no locally detectable features.

In many ways, a black hole acts like an ideal black body, as it reflects no light. Moreover, quantum field theory in curved spacetime predicts that event horizons emit Hawking radiation, with the same spectrum as a black body of a temperature inversely proportional to its mass. This temperature is on the order of billionths of a kelvin for black holes of stellar mass, making it essentially impossible to observe directly.

 

Sources : https://www.thehindu.com/sci-tech/science/indian-astrophysicists-spot-rare-merger-of-three-jumbo-black-holes/article36132122.ece

 

PRELIMS QUESTIONS

  1. Consider the following statement with regard to Financial Stability and Development Council (FSDC)
  2. An apex-level FSDC is a statutory body
  3. Separately allocated to the council for undertaking its activities

Select the correct statement using code given below.

(a). 1only       (b) 2 only

(c).Both       (d). None of above

Answer : D

It is an apex-level body constituted by the government of India. The idea to create such a super regulatory body was first mooted by the Raghuram Rajan Committee in 2008. Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up such an autonomous body dealing with macro prudential and financial regularities in the entire financial sector of India.

An apex-level FSDC is not a statutory body. The recent global economic meltdown has put pressure on governments and institutions across the globe to regulate their economic assets. This council is seen as India’s initiative to be better conditioned to prevent such incidents in future. The new body envisages to strengthen and institutionalise the mechanism of maintaining financial stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential regulation’ of economy. No funds are separately allocated to the council for undertaking its activities. The meeting of the council entrusted with enhancing coordination among financial sector regulators  RBI, SEBI, IRDA and PFRDA assumes significance.

 

  1. Consider the following statement with regard to Eco-Sensitive Zone
  2. The Environment (Protection) Act, 1986 define Eco-Sensitive Zones
  3. An ESZ could go below 10 kilometres around a protected area as provided in the Wildlife Conservation Strategy, 2002.

Select the correct statement using code given below.

(a). 1only       (b) 2 only

(c).Both       (d). None of above

Answer : D

Eco-Sensitive Zones (ESZs) or Ecologically Fragile Areas (EFAs) are areas in India notified by the Ministry of Environment, Forests and Climate Change (MoEFCC), Government of India around Protected Areas , National Parks and Wildlife Sanctuaries. The purpose of declaring ESZs is to create some kind of “shock absorbers” to the protected areas by regulating and managing the activities around such areas. They also act as a transition zone from areas of high protection to areas involving lesser protection.

The Environment (Protection) Act, 1986 does not mention the word “Eco-Sensitive Zones”. Section 3(2)(v) of the Act, says that Central Government can restrict areas in which any industries, operations or processes or class of industries, operations or processes shall not be carried out or shall be carried out subject to certain safeguards. An ESZ could go up to 10 kilometres around a protected area as provided in the Wildlife Conservation Strategy, 2002. Moreover, in case where sensitive corridors, connectivity and ecologically important patches, crucial for landscape linkage, are beyond 10 kilometres width, these should be included in the Eco-Sensitive Zones. Further, even in the context of a particular Protected Area, the distribution of an area of ESZ and the extent of regulation may not be uniform all around and it could be of variable width and extent

Register