Fiscal Policies

Mains Marks Booster     4th August 2023        
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  • Asset monetisation is the process of creating new sources of revenue for the government and its entities by unlocking the economic value of unutilised or underutilized public assets. 
  • A public asset can be any property owned by a public body, roads, airports, railways, stations, pipelines, mobile towers, transmission lines, etc., or even land that remains unutilized. 
  • As a concept, asset monetization implies offering public infrastructure to the institutional investors or private sector through structured mechanisms.
  • In India, the idea of asset monetisation was first suggested by a committee led by economist Vijay Kelkar in 2012 on the roadmap for fiscal consolidation. The committee had recommended that the government should start monetisation to raise resources for further development and financing infrastructure needs.

Asset Monetization is not same as Privatization:

  • Monetization is different from ‘privatization’, in fact, it signifies ‘structured partnerships’ with the private sector under certain contractual frameworks. 
  • Asset monetization has two important motives: 
  • Firstly, it unlocks value from the public investment in infrastructure, and secondly, it utilises productivity in the private sector. 
  • Asset monetization aims to tap the private sector investment for new infrastructure creation. 

Objectives of Asset Monetization:

  • Unlock the value of the unused public infrastructure
  • Taps private sector efficiency in resource utilisation
  • New source of revenue

Benefits of asset monetisation

  • Utilisation of assets for beneficial purposes, PSUs could use the revenue for reinvestment and modernisation and trim their market borrowings, saves up the maintenance cost, Promote balanced regional development, Private industrial expansion


  • Administrative issues: Asset register not well maintained, Lack of proper land titling, Delayed clearances, Lack of inter departmental coordination and Corruption and political influence.
  • Difficult to assess the real value of the assets,
  • Lack of independent regulator,
  • Ensuring accountability of private sector for citizens as India is a welfare nation
  • Inefficient dispute resolution mechanism,
  • Federal issues- taking states into confidence.

National Monetisation pipeline

National Monetisation pipeline has been introduced as a part of Union Budget 2021-22 to evolve a road map for monetisation of core assets.

National Monetisation pipeline

  • NMP is a roadmap for identifying potential monetization- Ready projects across various infrastructure sectors.
  • Strategic Objective - To unlock value in brownfield public sector projects by tapping private sector capital and efficiencies, transferring to them revenue rights but not ownership in the projects, and using the funds so generated for greenfield infrastructure creation across India.
  • Assets to be monetized - Core assets of the Central Government
  • Monetisation through disinvestment & monetisation of non-core assets are not included under NMP. 
  • Framework:
  • De-risked assets - These brownfield assets have been de-risked from execution risks & have stable revenue streams. 
  • Monetization of ‘Rights’ NOT ‘ownership’ 
  • Primary ownership continues to be with the Govt.
  • The private players will be taking on the operational risks and the assets will be handed back to the public authority at the end of transaction life (Thus, it is not a case of Privatization).
    • Period of NMP: Co-terminus with National Infrastructure Pipeline (NIP) – 4 years (2022-25).
  • 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value, including Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).
  • Instruments to be used in roll out of NMP: 
  • Direct contractual instruments such as public private partnership concessions. 
  • Capital market instruments such as InvIT or REIT. 
  • Implementation & Monitoring Mechanism: An empowered Core Group of Secretaries on Asset Monetization (CGAM) under the chairmanship of Cabinet Secretary has been constituted.
  • Real time monitoring through the asset monetisation dashboard.
  • The top 5 sectors (by estimated value) capture ~83% of the aggregate pipeline value. These top 5 sectors include: Roads (27%) followed by Railways (25%), Power (15%), oil & gas pipelines (8%) and Telecom (6%).

 Key Objectives of NMP are

  1. Serve as a medium-term roadmap for the line ministries and agencies.
  2. Provide medium-term visibility to investors on infrastructure assets pipeline.
  3. Provide a platform for ministries to track asset performance.
  4. Bring in greater efficiency and transparency in public assets management


Structural challenges-

  • Administrative inefficiencies, bureaucratic delay, huge paper work burden.
  • Legal uncertainty regarding land titling, measurement of correct value of asset.
  • Inefficient Dispute redressal mechanism.

Regulatory challenges

  • Lack of independent sectoral regulator
  • Chances of corruption, favouritism etc

Financial challenges

  • Lack of identifiable revenue streams in assets.
  • Issues regarding making the asset package attractive to investors.
  • Private sector dominance- higher consumer prices for goods and services.

Way ahead:

  • Former NITI Aayog CEO recommends focusing on three areas to boost monetization. First, implementation must be relentless. Second, brownfield models and frameworks will speed things up. Finally, driving states and collaborating on structured monetisation.
  • According to experts, if the government achieves to collect the targeted  money, then NMP will be marked among the biggest and boldest  reforms initiated in the infrastructure sector of all times.
  • This initiative aims to enable "Infrastructure Creation through Monetisation," where the public and private sectors work together to boost socio-economic growth and quality of life.

FDI Policy in India

Foreign Direct Investment means investment through capital instruments by a person resident outside India in an unlisted Indian company; or in ten per cent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company.

FDI routes in India:

  • Foreign Direct Investments (FDI) can be made under two routes—Automatic Route and Government Route. 
  • Under the Automatic Route, the foreign investor or the Indian company does not require any approval from RBI or the Government of India for the investment. 
  • Under the Government Route, prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required.

Evolution of FDI Policy in India since 1991:

Liberalization Phase (1991-2000)

  • In 1991, up to 51 % FDI was allowed in the automatic route in 35 high priority industries requiring large investments and technology.
  • Foreign Investment promotion Board was constituted for processing FDI proposals.

Globalization Phase: 2000-2014:

  • In 2000, except for small negative list all activities were placed under automatic route.
  • Consolidation of existing FDI regulations to a single document for ease of reference.

Radical Liberalization: since 2014

  • Make in India Consolidated FDI policy 2016
  • FDI in pharma sector up to 74% under automatic route.

Current Policy: The currently effective Consolidated FDI Policy Circular was issued by Department for Promotion of Industry and Internal Trade (DPIIT) on October 15, 2020.

  • Under the new policy, up to 74% of FDI under Automatic is allowed in the defence sector.
  • 100% FDI is allowed in Exploration activities of oil and natural gas fields 

Foreign Trade Policy, 2023

Aims at:

  • Enhance competitiveness of Indian exports in the global market (India’s overall exports are about to reach US $760 billion in 2023).
  • Promote sustainable development of the country’s trade sector.
  • Make India a leader in specific sectors such as pharmaceuticals, engineering goods, and textiles.
  • Promote a digital economy and leverage technology to enhance the competitiveness of Indian exports.

Four Pillars of FTP – 2023

  • From incentive to Tax Remission
  • Greater Trade Facilitation through technology, automation and continuous process re-engineering
  • Export promotion through collaboration, exporters, states, districts
  • Focus on emerging areas such as e-Commerce Exports, Developing Districts as Export Hubs, Streamlining SCOMET Policy

Status of FDI in India:

  • Foreign Direct Investment (FDI) is considered as a major source of non-debt financial resource for the economic development. FDI flows into India have grown consistently since liberalization.
  • The total FDI inflows received in the last 9 years (April 2014- March 2023) was $ 595.25 bn which amounts to nearly 65% of total FDI inflow in last 23 years. 
    • According to the World Investment Report 2022, India was ranked eighth among the world's major FDI recipients in 2020.
    • Mauritius (26%), Singapore (23%), USA (9%), Netherland (7%) and Japan (6%) emerge as top 5 countries for FDI equity inflows into India FY 2022-23.
  • Top 5 sectors receiving highest FDI Equity Inflow during FY 2022-23 are Services Sector (16%), Computer Software & Hardware (15%), Trading (6%), Telecommunications (6%) and Automobile Industry (5%).


  • Fluctuations in the flow of FDI negatively affects the industry: For instance, FDI inflows fell by 16% in during 2022 due to weak global economic situation. This is the first such fall in a decade. 
  • The UNCTAD’s Global Investment report has warned that investor uncertainty and risk aversity could put significant downward pressure on global FDI.
  • Regional Disparity: FDI flow is mostly concentrated in few developed states of India. For instance, major recipient states of FDI Equity inflow are Karnataka (53%), Delhi (17%) and Maharashtra (17%) during FY 2021-22. 
  • Sectoral concentration: For e.g. Computer Software & Hardware’ has emerged as the top recipient sector of FDI Equity inflow during FY 2021-22 with around 25% share followed by Services Sector (12%) and Automobile Industry (12%) respectively.
  • Tax haven like Mauritius as top FDI sources.

Current initiatives promoting FDI in India:

            Current initiatives promoting FDI in India:

Way forward: 

  • As per UNCTAD’s World Investment report despite slowdown in FDI flows India remains an attractive market for the FDI.
  • According to Deloitte, India must enact more reforms to ensure FDI flows not only continue but also play a meaningful role in attaining the US$5 trillion economy target.
  • India must continue to enact reforms and initiatives that drive improvement, building confidence in and enhancing the competitiveness of India’s economy.
  • FDI In Manufacturing: To endure higher gross capital formation India needs to increase FDI flows in the manufacturing sector. 
  • Need for Diversification of Source: India needs to diversify its sources of foreign capital besides current partners the US and the UK.  Diversification of source of FDI will provide a broad-based networking and access to technology and help to mitigating geopolitical risks.


Disinvestment or divestment is when the government sells its assets or a subsidiary, such as a Central or State public sector enterprise. 

  • Minority disinvestment, majority disinvestment, and complete privatisation are the three main approaches to disinvestment. 
  • On fruition of minority disinvestment, the government retains a majority in the company, typically greater than 51%, thus ensuring control over the management. 
  • In the case of majority divestment, the government hands over control to the acquiring entity but retains some stake in the enterprise.  
  • In complete privatisation, 100% control of the company is passed on to the buyer.
  • Strategic disinvestment- giving up majority stake as well as management control to the private sector.
  • The Union Finance Ministry has a separate department for undertaking disinvestment-related procedures called the Department of Investment and Public Asset Management (DIPAM). 

Evolution of disinvestment policy in India:

Period from 1991-92 - 2000-01:

  • The idea of disinvestment was first introduced in the 1991 interim Budget by the then Finance Minister as the country was going through LPG reforms.

Period from 2001-02 - 2003-04:

  • This was the period when maximum number of disinvestments took place. 
  • These took the shape of either strategic sales (involving an effective transfer of control and management to a private entity) or an offer for sale to the public, with the government still retaining control of the management.

Period from 2004-05 - 2008-09:

  • The issue of PSU disinvestment remained a contentious issue through this period. 

Period from 2009-10 to 2020-21:

    • A stable government and improved stock market conditions initially led to a renewed thrust on disinvestments.
This period saw disinvestments in companies such as NHPC Ltd., Oil India Ltd., NTPC Ltd., REC, NMDC, SJVN, EIL, CIL, MOIL, etc. through public offers.

Objectives of Disinvestment:

    • Improve corporate governance.
    • Realize the productive potential of CPSEs through improved efficiency and profitability.
    • CPSE's wealth should rest in the hands of the people.
    • Raise resources for the Government.

Current Status and Targets of Disinvestment:    
Current Status and Targets of Disinvestment: 

Strategic Disinvestment Policy 2021:

Fulfilling the governments’ commitment under the Atma Nirbhar Package of coming up with a policy of strategic disinvestment of public sector enterprises,

  1. Existing CPSEs, Public Sector Banks and Public Sector Insurance Companies to be covered under it.
  2. Two-fold classification of Sectors to be disinvested:
  1. Strategic Sector: Bare minimum presence of the public sector enterprises and remaining to be privatized or merged or subsidiarized with other CPSEs or closed.

Current Disinvestment Targets

  • In the Union Budget for 2023-24, the government has set a disinvestment target of ?51,000 crore, the lowest target in seven years. 

Issues and challenges:

According to Finance Ministry in its annual report that stake sale process in FY 23 were stalled by global as well as domestic issues 
Issues and challenges against disivement

  • Global Challenges: COVID-19 pandemic seriously impacted transactions in 2020 and 2021, followed by the Ukraine conflict last year, which hurt minority as well as strategic stake sales. 
  • Domestic Issues: Strategic disinvestment transactions have to deal with matters such as resolving land title, lease and land use issues with State government authorities, disposal of non-core assets, excess manpower and labour unions, protection of process and functionaries etc. 
  • Frequent use of Exchange Trade Funds: Between 2016-17 and 2019-20, the government had raised almost ?99,000 crore from ETFs with underlying shares of CPSEs. 
  • Lack of clarity in policies: For instance, the privatization of BPCL in 2022 was stalled after two bidders walked out over issues such as lack of clarity in fuel pricing.

Conclusion: Divestment should not be viewed as a short-term budgetary solution but rather as a long-term strategy to increase India's output of products and services. The regulatory structure that supports efficient market conditions needs to be enhanced by the government.

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