- GS-3: Indian Economy; Infrastructure
- GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation
National Land Monetisation Corporation (NLMC)
Context: The Union Cabinet on March 9 approved the creation of the National Land Monetisation Corporation (NLMC), the Special Purpose Vehicle (SPV) that Finance Minister had announced in the Union Budget 2021-22.
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
- Retaining 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.
- Government monetises its assets for the following reasons
- Creates new sources of revenue for government
- Unlocks the potential of unused or underused assets by involving institutional investors or private players.
- Generate resources or capital for future asset creation, such as using the money generated from monetisation to create new infrastructure projects.
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.
- 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.
- 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.
What are the merits of having NLMC?
- The setting of the NLMC will speed up the closure process of the CPSEs and smoothen the strategic disinvestment process.
- 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
- generating financial resources for potential economic and social infrastructure.
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 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?
1. Depends on Government Disinvestment Performance
- 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.
- 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.
2. Operational Challenges
- 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.
3. Lack of Competition
- 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.
Connecting the dots: