INR 2.5 lakh crore (INR 2.5 trillion) from asset monetization target in India

As announced by the finance minister in the FY2022 budget speech, the Indian government is aiming to monetize 100 government-owned assets across sectors to mobilize about INR 2.5 trillion, which will be crucial to meet the overall revenue target. This is part of a National Asset Monetization pipeline. Excerpts from a news report in The Times of India. 

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Reiterating his strong backing for privatisation and asset monetisation, the PM said the reforms, which have been launched, were aimed at ensuring that public money is spent judiciously to benefit the poor, in what was seen as a response to critics of the new policy unveiled in the Budget.

“The money that belongs to the poor is used for such enterprises (PSUs). This puts a huge burden on the economy,” Modi told a webinar to draw up the roadmap for the implementation of Budget proposals on privatisation and asset monetisation.

He said the government does not have to keep running public sector enterprises just because they have been running for decades or they were “pet projects of somebody”.

[…]Since coming to power in 2014, the NDA government has talked about the sale of PSUs, especially loss-making ones, such as Air India, but it has a poor track record. It sought to pass off the sale of state-run entities, such as HPCL to ONGC, another PSU, as strategic sale, drawing criticism even from the CAG.

It is now trying to push it as a key reform initiative and has even added state-run banks and a general insurance company to the list, after specifying that only four strategic sectors — atomic energy, space and defence, transport and telecom, power and petroleum — will have PSUs. Even in the sectors, state-run firms can have a diminished presence.

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The finance minister committed, in her budget speech, that the government will bring down fiscal deficit to 4.5% of GDP by FY2026, largely by increasing buoyancy of tax revenue through improved compliance, and increased receipts from assets monetization (including public sector enterprises and land).

In FY2022 alone, divestment receipts (which are a part of capital receipts) of INR 1.8 trillion is planned. Divestment targets have been missed in the past. For instance, the government could not meet the divestment target in FY2020 (INR 0.5 trillion vs INR 1.05 trillion targeted) and FY2021 (INR 0.32 trillion vs INR 2.1 trillion targeted). Note that for FY2022, planned divestment receipts account for 5% of total revenue receipts and 10.3% of capital receipts.

Food subsidy, fiscal conundrum and mapping of migrant workers in India

Excess stocks of the Food Corporation of India must be released to the poor

Jean Dreze writes in The Indian Express: Everyone knows that the country has large food stocks, and that some of this could be used to protect people from hunger during the coronavirus crisis. The enormity of the situation, however, has escaped many observers. [...] Last year, in June (when the stocks normally peak), foodgrain stocks crossed 80 million tonnes — more than three times the buffer-stock norms. This year, they have reached a staggering 77 million tonnes in March, before the rabi harvest, when food stocks typically rise by another 20 million tonnes or so. Public food storage on this scale has never happened in India before. Meanwhile, the shadow of hunger looms large as the lockdown devastates people’s livelihoods. The finance minister did not do them a big favour by doubling PDS rations for the next three months — something like that was needed, in any case, to make space in FCI’s overflowing godowns for rabi procurement. A serious relief package would include releasing excess stocks to the states in large quantities.

Why is it proving so difficult? One reason has to do with food-subsidy accounting. The food subsidy essentially pays for the losses FCI makes when it buys at minimum support prices and sells at much lower PDS prices, and also the money spent on transportation and storage. As it happens, however, the food subsidy does not enter the central government’s accounts until stocks are released. That is why the finance minister had to budget Rs 40,000 crore in her relief package simply to release some excess food stocks into the PDS. In economic terms, releasing excess stocks is costless, and even saves money. But in accounting terms, it is expensive. This anomaly makes it harder to release food stocks: Credit-rating agencies watch the fiscal deficit, not the food economy.

[...]In short, food transfers are bound to play a big role in keeping poor people alive in the next few months. Food schemes such as the PDS and mid-day meals are in place in most villages, it is mainly a matter of reinforcing them. For this to happen, the central government must unlock the godowns and give plenty of food to the states. Never mind if the step takes the fiscal deficit a notch higher due to muddled accounting.

Devesh Kapur and Arvind Subramanian outlined five measures to secure fiscal space needed to address the economic crisis wrought by the COVID-19 pandemic.

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Govt begins mapping of migrant workers for relief measures

From Business Standard: The central government has begun one of the most comprehensive exercises to map migrant workers scattered across the country — in relief camps, on their employers’ premises, or in clusters where they reside. The government wants to create a database of millions of such workers to ascertain whether a relief package could be announced for the most affected segment of the workforce due to the national lockdown to contain the spread of coronavirus (Covid-19), a senior labour and employment ministry official said. The Union home ministry and the labour ministry have asked state governments to coordinate with the chief labour commissioner’s (CLC’s) office to give a comprehensive data of all the migrant workers by April 11.

[...]According to the central government’s estimates, part of its response to a petition filed by activists Anjali Bhardwaj and Harsh Mander in the Supreme Court, around 1.03 million people are residing in relief camps. But this might be an underestimation because the information was not captured from all the shelter homes. Additionally, at least 1.5 million workers are being provided shelter by employers across the country.

[...]According to official estimates, 500,000-600,000 workers had to walk back home on foot because public transport was not available to them. They travelled miles on foot to reach their villages. Hundreds of thousands of migrant workers are still living in shelter homes set up by various state governments in India, while the rest are under quarantine facility before they are allowed to meet their families.

Migrant crisis in India: 

• 0.5 to 0.6 million workers walked on foot to villages after lockdown
• 8.4 million were given food by government and NGOs
• 1.03 million are in relief camps or shelter homes
• 1.5 million given shelter or food by employers
• 22,567 shelter homes (Kerala accounts for 70% of them)

Advance VAT payment, one-third of SOEs in loss and more

Consumers, suppliers to share VAT burden

From The Himalayan Times: The government has introduced a new provision which makes it mandatory for consumers who purchase goods and services from contractors and consulting firms to deposit half of the value-added tax amount in the state coffers themselves. As per the existing provision, if a consumer purchases goods or services worth Rs 10,000 from a contractor or consultancy firm, s/he must deposit half of the VAT amount — Rs 650 — at the tax office on his/her own and pay the contractor the remaining amount. Yagya Prasad Dhungel, information officer at the Inland Revenue Department, said the existing VAT guideline had been amended to this effect in a bid to end the trend among firms to hold on to the collected VAT amount.

The government has introduced such a provision also because contractors and consultancy service providers were increasingly found to be collecting VAT from service seekers, but were reluctant to deposit the collected amount in the state coffers.“Till now sellers had been collecting VAT from buyers and depositing the collected amount in the tax office themselves. However, with the new policy, both buyers and sellers will have to deposit 50 per cent of the VAT amount,” said Dhungel. He added that the new provision would make both suppliers and consumers responsible towards VAT payment to the government.

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One-third of public enterprises post net loss despite heavy funding

From The Kathmandu Post: The dismal financial performance of the state-run enterprises continued in the last fiscal year with one-third of enterprises still reporting negative net income. Out of 39 public enterprises, only 26 earned profits in 2017-18. The government injected Rs164.42 billion in credit to these enterprises to run them, a rise by 0.67 percent as compared to previous fiscal year, according to the Annual Performance Review Report of Public Enterprises released by the Finance Ministry.

Similarly, the state equity investment in the public enterprises stood at Rs237 billion. The government, however, received Rs9.89 billion as dividend, up 27.28 percent as compared to previous year. When compared with huge capital injection for the public enterprises by the government, the dividend returns is just 4 percent. 

The performance of enterprises in the manufacturing sector, in particular, appeared pathetic as the state has not received any return from them in the last five years. These manufacturing businesses are—Dairy Development Corporation, Herbs Production and Processing Company, Hetauda Cement Industries, Janakpur Cigarette Factory, Nepal Drugs, Udayapur Cement Industries and Nepal Orind Magnesite. Instead, there was an increase in cumulative loss in five of these enterprises except Hetauda Cement and Udayapur Cement industries. The net profit of 26 enterprises rose by a mere 4.88 percent to Rs43.44 billion in the review period.

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Route permits discarded for unregistered committees

From myRepublica: The Department of Transportation Management (DoTM) has canceled the route permits of all vehicles operated by transportation committees registered under Associations Registration Act 2034 BS. The government had given deadline till Saturday, June 1, for the transportation committees registered as associations to get registered as companies and to get listed in the department. The department has said that the route renewal, registration, and permit of transportation committees registered as associations instead of companies have been discarded.

According to Company Registrar's Office, 160 committees have been registered as companies. “We had given a deadline for registration till Saturday night,” said registrar of the office Bhuwan Hari Aryal. He said that the office was carrying out internal works on the registered companies. “Verification of the companies is going on, therefore, the number may increase or decrease,” he said. He said that as the entrepreneurs waited until the last hour, there was a huge crowd at the office.