The story so far: The Union Cabinet on March 9 approved the creation of the National Land Monetisation Corporation (NLMC), the Special Purpose Vehicle (SPV) that Finance Minister Nirmala Sitharaman had announced in the Union Budget 2021-22, to carry out monetisation of government and surplus land holdings of public sector undertakings (PSU).
What is the NLMC and what will it do?
The National Land Monetisation Corporation will be a firm, fully owned by the government, to carry out the monetisation of government and public sector assets in the form of surplus, unused or underused land assets. It will fall under the administrative jurisdiction of the Ministry of Finance and will be set up with an initial authorised share capital of ₹5,000 crore and a paid-up capital of ₹150 crore.
Apart from monetising underutilised or unused land parcels of Central Public Sector Enterprises (CPSEs), the Corporation will also facilitate the monetisation of assets belonging to PSUs that have ceased operations or are in line for a strategic disinvestment, with the aim of unlocking the value of these land holdings.
The surplus land and building assets of such enterprises are expected to be transferred to the NLMC, which will then hold, manage and monetise them.
According to an official statement released after a recent Cabinet meeting chaired by Prime Minister Narendra Modi, the setting of the NLMC “will speed up the closure process of the CPSEs and smoothen the strategic disinvestment process.”
The statement said it “will also enable productive utilisation of these under-utilised assets” by setting in motion private sector investments, new economic activities such as industrialisation, boosting the local economy by generating employment and generating financial resources for potential economic and social infrastructure.
Besides managing and monetising, the NLMC will act as an advisory body and support other government entities and CPSEs in identifying their surplus non-core assets and monetising them in an efficient and professional manner, maximising the scope of value realisation.
What does monetisation mean?
When the government monetises its assets, it essentially means that it is transferring the revenue rights of the asset (could be idle land, infrastructure, PSU) to a private player for a specified period of time. In such a transaction, the government gets in return an upfront payment from the private entity, regular share of the revenue generated from the asset, a promise of steady investment into the asset, and the title rights to the monetised asset.
There are multiple ways to monetise government assets; in the case of land monetisation of certain spaces like offices, it can be done through a Real Estate Investment Trust (REIT) — a company that owns and operates a land asset and sometimes, funds income-producing real estate. Assets of the government can also be monetised through the Public Private Partnerships (PPP) model.
There are different reasons why the government monetises its assets. One of them is to create new sources of revenue. The economy has already been hit due to the coronavirus pandemic and revenues are essential to fulfil the Narendra Modi government’s target of achieving a $5 trillion economy.
Monetisation is also done to unlock the potential of unused or underused assets by involving institutional investors or private players.
Thirdly, it is also done to generate resources or capital for future asset creation, such as using the money generated from monetisation to create new infrastructure projects.
How will the NLMC function?
The firm will hire professionals from the private sector with a merit based approach, similar to other specialised government companies like the National investment and infrastructure Fund (NIIF) and Invest India. This is because asset monetisation of real estate requires expertise in valuation of property, market research, investment banking, land management, legal diligence and other related skill sets.
The NLMC will undertake monetisation as an agency function and is expected to act as a directory of best practices in land monetisation.
How much land is currently available for monetisation?
According to the Economic Survey 2021-2022, as of now, CPSEs have put nearly 3,400 acres of land on the table for potential monetisation. They have referred this land to the Department of Investment and Public Asset Management (DIPAM).
As per the survey, monetisation of non-core assets of PSUs such as MTNL, BSNL, BPCL, B&R, BEML, HMT Ltd, Instrumentation Ltd etc are at different stages. In March 2020, for instance, BSNL had identified a total of ₹24,980 crore worth of properties for monetisation. The Railways and Defence Ministries, meanwhile, have the largest amount of government land in the country. The Railways have over 11 lakh acres of land available out of which 1.25 lakh acres is vacant. The Defence Ministry has in its possession 17.95 lakh acres of land. Out of this, around 1.6 lakh acres fall inside the 62 military cantonments while over 16 lakh acres are outside the cantonment boundaries.
What are the possible challenges for NLMC?
The performance and productivity of the NLMC will also depend on the government’s performance on its disinvestment targets. In FY 2021-22, the government has just been able to raise ₹12,423.67 crore so far through various forms of disinvestment. In the budget 2021-22, the government had initially set a disinvestment target of ₹1.75 lakh crore which was later brought down to ₹78,000 crore. The Life Insurance Corporation IPO, which was supposed to raise ₹60,000 crore is now shrouded in uncertainty owing to the Russia-Ukraine crisis making stock markets volatile. If the IPO does not hit the markets by the end of March, the government would be missing its disinvestment targets by a wide margin.
The procedure to find a bidder for state-owned carrier Air India also took a considerable amount of time and negotiations before the Tata Group came in.
Besides, the process of asset monetisation does not end when the government transfers revenue rights to private players, identifying profitable revenue streams for the monetised land assets, ensuring adequate investment by the private player and setting up a dispute-resolution mechanism are also important tasks. Posing as another potential challenge would be the use of Public Private Partnerships (PPPs) as a monetisation model. For instance, the results of the Centre’s PPP initiative launched in 2020 for the Railways were not encouraging.
It had invited private parties to run 150 trains of the Indian Railways but when bids were thrown open, nine clusters of trains saw no bidders while there were only two interested bidders for three clusters. Even for these three clusters, IRCTC — the Railways’ own firm, was the single serious bidder. The presence of just a few serious bidders would also give rise to the possibility of a less competitive space, meaning a few private entities might create a monopoly or duopoly in operating surplus government land. For instance, questions were raised when the government removed the cap on the number of airports a single entity could bid for, resulting in the Adani Group taking possession of six city airports for ₹2,440 crore from the Airports Authority of India.
