Why are government assets a black box?

Aarati Krishnan | Updated on June 10, 2018 Published on June 10, 2018

Budget documents are all about deficits and borrowings. But mystery shrouds the true value of the government’s assets

As the Centre’s plan to offload a majority stake in Air India failed to take off last week, ideas poured in for monetisation of the airline’s other assets. Why can’t the national carrier cash out of its prime property in cities such as Mumbai, Delhi and Chennai? Can’t it auction off the treasure trove of artefacts, sculptures and paintings it has hoarded over the years?

These are good ideas, but they have been tried out in the past without much success. In 2012, as a part of the turnaround scheme to mend Air India’s finances, the government came up with an ambitious plan to generate ₹5,000 crore by leasing or selling its prime tracts of real estate all over India. This March, the government admitted to Parliament that the monetisation exercise had yielded just ₹543 crore in the last five years, due to problems with land titles and end-use restrictions.

Last year, an FIR was filed against a senior Air India official for spiriting away a valuable painting belonging to the carrier and trying to sell it in the market. Later reports suggested that this wasn’t an isolated case. Artwork valued at ₹750 crore had gone missing from the national carrier over the years.

The Indian Railways, which set up the Rail Land Development Authority ten years ago to monetise its vast landholdings of over four lakh hectares, has seen slow progress. Its monetisation efforts have come up against title issues and encroachments. It has now embarked on a GPS-mapping exercise for its assets to keep close tabs on them.

Whither assets

These instances raise an important question about the Government of India’s finances. During the Budget every year, Indian citizens get an earful about the government’s fiscal and revenue deficits, its large liabilities and debt as a percentage of GDP.

The latest Budget documents, for instance, tell us that the Central government had outstanding liabilities of ₹82.3 lakh crore by end-March 2018.

But what is the value of the government’s assets? That’s a number shrouded in mystery.

Thanks to the peculiarities of government accounting (which is based on cash and not an accrual system), the government doesn’t present either a profit and loss account or a balance sheet with its annual budget. It instead discloses standalone statements on receipts, expenditure, assets and debt.

Sifting through the latest Union Budget documents yields two statements that talk of the Government of India’s assets.

There’s a Statement of Assets that simply totals up the capital outlays and loans advanced by the Centre over the years to arrive at the assets number. The latest statement tells us that the Centre’s total assets, by this method, stood at ₹33.8 lakh crore, as per the revised estimates for FY18. These ‘assets’ have expanded from ₹22.5 lakh crore to ₹33.8 lakh crore in the last four years, falling well short of the liabilities of ₹82.3 lakh crore.

If you dig deeper for details of actual assets owned by the government, they are tucked away in the Asset Register. The latest Asset Register, available for FY17, categorises government assets into land, buildings, roads, bridges, vehicles, shares, etc. But it pegs the total government assets at ₹13.4 lakh crore as of end-FY17.

Of this, physical assets made up a measly ₹4.7 lakh crore while financial assets (equity shares and loans) chipped in with ₹8.7 lakh crore.

Asset mismatch

Now, the physical asset number of ₹4.7 lakh crore appears quite small given the size of the government balance sheet. After all, the Statement of Assets tells us that it had made cumulative capital investments and loans of over ₹30 lakh crore until FY17. The Centre and public sector enterprises spend ₹6 -7 lakh crore every year, on capital projects.

This leads to the conclusion that the Asset Register is a far from complete account of the Union Government’s physical assets. Not all of the government’s arms seem to maintain an asset register. Under the FRBM rules of 2004 which first mandated the Asset Register, the Cabinet Secretariat, the Ministry of Defence and Departments of Space and Atomic Energy were exempted from the requirement. Assets valued at less than ₹2 lakh were excluded too.

Two, some government departments also appear to be quite lackadaisical about maintaining this register. Not only is the Asset Register disclosed in the Budget dated, the footnotes to it mention that the opening and closing balances ‘may be impacted’ by ongoing reconciliation or liquidation. In its audit of the Indian Railways, the CAG had flagged that some zones had failed to regularly update the asset register.

For a citizen looking to assess the current asset position of the government, the Asset Register also suffers from other serious shortcomings. In recent years, many of the capital expenditure programmes and welfare projects of the Centre are being routed through Special Purpose Vehicles or non-State entities.

In such cases, the spending may show up as a grant to the entity executing the project, without the resulting assets being captured in its books. It is also an issue that the register captures assets at their original acquisition cost, rather than their current replacement cost or market value. There’s no disclosure of wear and tear or depreciation.

Many benefits

As the Government of India embarks on accounting reforms, it should treat a proper enumeration and valuation of its assets as its top priority. A complete listing of the assets created with budgetary resources would be a great way to re-assure taxpayers that their money is well-spent. A capture of assets at their true value can also reassure lenders to the Indian Government and the global rating agencies, that the debt burden it carries is manageable.

There are also a couple of spin-off benefits to any ruling political dispensation from a realistic valuation of government assets.

It could help make government entities such as the Railways and NHAI more self-reliant on funding, without leaning heavily on the Union Budget. For instance, the Railways has charted out an ambitious expansion and modernisation programme requiring outlays of ₹1.5 lakh crore a year over the next few years. Given that the Budget can only chip in with a third of that amount, leasing its land assets or parking them in an SPV can help it raise equity or external borrowings.

It would also smooth the path for controversy-free privatisation of loss-making PSUs such as Air India. If the strategic sale of a public sector entity is based on an ongoing, market-based valuation of its assets, it would be hard for naysayers to accuse the government of pawning off family silver at bargain prices.

The icing on the cake for taxpayers would be if this periodic asset valuation exercise can be extended to intangibles like telecom spectrum or mining rights. That would mean bye-bye to all the scams and bribery around the allotment of spectrum, coal and natural resources.

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Published on June 10, 2018
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