[Answered] Asset monetization holds the key to value creation in infrastructure. Critically evaluate the statement.

Introduction: contextual introduction.
Body: Write in brief about the importance of asset monetisation in infrastructure value creation. Write some associated challenges.
Conclusion: Give a way forward.

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 underutilised public assets. It was first suggested by Vijay Kelkar committee in 2012 on the roadmap for fiscal consolidation. It is not just a funding mechanism, but an overall paradigm shift in infrastructure operations, augmentation and maintenance.

Rationale behind Asset Monetisation:
  • Need of infrastructure investment: With the COVID taking an unprecedented toll on the economic activity in the country, enhanced level of infrastructure investment is required for reviving growth.
  • Sustainable infrastructure systems: Covid has also shown the need for resilient, sustainable, and advanced infrastructure systems.
  • Long-term capital requirement: Investing huge sums in creating world-class infrastructure will require long-term capital.
  • Improved Governance and Public services: Corruption and inefficiency are often blamed for the poor state of public services like policing, health, education, transport and so on. However, cash-strapped governments are the single biggest reason for the poor public delivery of services. With an increase in public finances, governance and public services will improve substantially.

Issues with the monetization of assets:

  • The first criticism is whether the adequate value from the assets will be realized or not. This depends on the quality of the bidding process and whether enough private players are attracted to bid.
  • Investors may prefer properly utilized assets over under- utilized assets.
  • There will be execution risk in such a large scheme.
  • The taxpayers have already paid for these public assets and, so, why should they pay again to a private party to use them.
  • The allocation of assets owned by governments to private investors is often subject to political influence, which can lead to corruption.

Way forward:

  • Private Sector participation will depend upon the operational flexibility, regulatory framework, dispute resolution mechanism, etc.
  • Strengthen institutional capacity to draft such attractive agreements across multiple sectors and settings.
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