Is it still too early to judge the success of IBC? Businessline 27th September 2021

 

Progress has been more than satisfactory, but India has to work hard to ensure that the resolution processes get stronger

There is still a debate on whether the IBC has been a success. The view here is that it may be still too early to judge, but credit should be given to the Insolvency and Bankruptcy Board of India (IBBI) for having this system in place. And, more importantly, we need to have this structure, which could be fine-tuned, if required.

The path has not been smooth for sure as defaulters do not want to give up on their assets and believe that it is okay to not service loans. The RBI had to fight a battle here (the famous February 12, 2018 notification) with the government, and the courts had ruled that this could not be driven by the central bank.

Onus on banks

The RBI had to retreat and dilute its circular, and finally put the onus on banks to ensure that defaulters are taken to the IBC. Therefore, the modified rules now increase the provisions that must be made by banks in the absence of a resolution plan not being implemented in a timely manner. Recovery through the IBC has been higher in FY20, according to the RBI, at 46 per cent, compared with SARFAESI, DRTs or Lok Adalat.

This number came down in FY21 and, as of June 2021, was at 36 per cent, which was again expected, given that the government had provided relief for six months for companies, which was extended in September 2020 by another three months. The IBC was to have a benchmark of 180 days, with another extension of 90 days, to resolve the cases before insolvency proceedings were invoked. It is again not surprising that it has been pointed out that over 75 per cent of the ongoing cases are over 270 days, especially due to the pandemic, and the various measures taken for restructuring assets as well as moratorium provided last year.

The metric which can be used to measure the success of insolvency resolution is the recovery rate. In the past it was in the region of 20 per cent, which means that 40 per cent-plus according to the IBC is good. True, when the dirty dozen was sifted to begin with, the recovery rates were impressive at 70 per cent-plus, but this is exactly where the conundrum lies. As proceedings get delayed, the realisation will fall, especially if the plants are not operational to the full extent as the value comes down under such conditions.

Global recession

Further, markets have changed significantly due to the global recession last year, and the pandemic has altered the way of doing business. Again, a change in ideology, especially towards ESG, means that conventional power-generating companies are no longer attractive. The same holds for industries that contribute to a rise in emissions. This means that progressively buyers will get scarce leading to bigger haircuts. This will come in the way of further resolution of NPAs.

‘Bad bank’

The National Asset Reconstruction Company is now being formed and will soon be operational as a bad bank. The idea is not new as the asset reconstruction companies that were in operation were not able to do complete justice to the task, which led to the IBC. Now, with the NARC coming up, there will be diversion of proposals potentially from the IBC to NARC.

The issue is in the realm of game theory. All sellers of bad assets want the best realisation, while the buyer wants to pay the lowest amount. This leads to the bargaining game, which, so far, has been in favour of the buyer.

The IBC tries to change the dynamics by forcing such assets to be put on the table and, more importantly, keeping it time-bound. NARC being owned by the public sector should work as PSBs were always scared of selling assets to the asset reconstruction companies as audit at a later date could jeopardise their stance.

Owners of assets will always drag their feet and look for legal recourse, which was the case earlier. The point made by the defaulting companies is straight forward. If all NPAs are going to be auctioned after 270 days, then the incentive to invest will come down as will risk-taking ability. The fear of failure will come in the way of setting up new enterprises. Therefore, the banking system must be tolerant, especially when the failure of business is due to the economic environment and is not a ‘willful action’. The argument is strong, but given that banks deal with deposit holders’ money, there is a moral dilemma.

When the IBC came up with numbers like 180 days with an extension of 90 days, it was done after careful deliberation. Now, it is 330 days. In 2015, the World Bank Doing Business Indicators highlighted that it took 4.3 years for resolution of insolvency with a recovery of 25.7 per cent. For China, it was 1.7 years with recovery of 36 per cent.

Therefore, the progress made has been more than satisfactory over the years. All such processes, which involve legal issues as well as sentiment tend to run into the law of diminishing returns wherein once the low hanging fruits are plucked, it gets progressively difficult as one climbs up.

The IBBI has reported that of the 4,541 CIRPs admitted since June 2016, around 63 per cent have been closed, which is quite impressive, given the number that is involved. This is notwithstanding the various hiccups that have been encountered starting with the availability of professionals to companies seeking recourse to courts to protect their assets. The recovery rates could come down further with time, which can moderate to around 30-33 per cent. But having the IBC is essential to hold out a credible threat to companies.

Bond market

Also, as there is serious talk of growing the corporate bond market, the success of a resolution system is important. When there are NPAs the problem is for bankers who must make provisions and chase the borrowers.

However, when it comes to the bond market, there is no system of recourse except the legal system, and an individual bond holder will not know what to do in case of a default. Therefore, the country has to work hard to ensure that the resolution processes get stronger, including all institutions such as IBBI (IBC), DRT, ARCs, as the future growth of the economy has to come from the bond market, which cannot get out of the shell of being only a platform for AAA and AA-rated companies as 80 per cent of the corporates do not have such ratings.

From the far end of the field | Book Review — Star Gazing: The Players in My Life by Ravi Shastri with Ayaz Memon: Financial Express 26th Sept 2021

 Ravi Shastri is a well-known name in cricket for the new generation too, even though he stopped playing cricket in 1992. Besides being the coach for the Indian team today, his reputation has been built for being a levelheaded cricket commentator until he took over the coaching assignment. Known for his incisive and unbiased analysis, he did command respect from viewers.

In his book, Star Gazing, Shastri, along with Ayaz Memon, writes on several cricketers, starting from the ones he grew up admiring to the more contemporary players who he has been observing from the commentator box.

It is a good collection of write-ups on cricketers that will be of interest to cricket enthusiasts from all generations. Where he was personally involved as a player or commentator, there are nice reminiscences of specific bowling spells or batting episodes that readers can relate to well.

While he is very diplomatic in his commentary, which is to be expected, as this is all about cricketers he admires for various reasons, he steers clear of any controversy that some of the players may have been involved with.

Even for Greg Chappell, who had a fairly tumultuous relation with other Indian cricketers as a coach, Shastri talks only of his unsavoury mark on Test cricket when he asked his younger brother to bowl underarm, which was legitimate, though not fair. Other than that, he steers clear of any political discourse.

On another occasion, he talks of how he had chased Javed Miandad out of the Indian dressing room when he became unpleasant when the Indian team was celebrating. If the reader is looking to read more of such incidents, there would be some disappointment.

Shastri has been generous with his praise for various cricketers but the ones who would stand out in his ranking are Gary Sobers, for being the most gifted all-rounder, and Vivian Richards, the most feared batman. Both were from the West Indies and both were awe-inspiring. For sheer power with the bat, Clive Lloyd would get the applause. Here, there would be less debate as most enthusiasts who have lived through the years of cricket will not contest his picks.

Similarly, he is awestruck with Gundappa Vishwanath for sheer style and an effortless approach to batting, something the old-timers will agree with. There used to be a saying that whenever India won, Vishwanath would have done well.

Farokh Engineer was probably the first cavalier batsman who was liked by all and Mansoor Ali Khan Pataudi a very astute captain. There are chapters on them as well.

He also talks highly of Richie Benaud, not so much as a cricketer but a commentator, and here again one cannot have a different view. What have been the two key takeaways from Benaud are that appearance is very important, and this is something Shastri has also been known for. When you look at a commentator one should be inspired and there was everything perfect about Benaud’s appearance, starting from hair styling to the tie pin.

The second is that as a TV commentator one should know that it is different from radio and should be less descriptive and more critical so that there is more perspective. These are two good lessons for anyone who aspires to become a cricket commentator.

Hopefully, the present lot of commentators should take a cue from this observation, as watching cricket can be jarring when the commentators keep rambling, saying the same things we can see clearly on the screen.

Shastri has clubbed the players under different sections like the ones who inspired him and the ones who he played with, who he calls ‘friends and rivals’. The common thread through all these stories is that while cricketers may be nasty on the field, which holds traditionally for Australians starting from Ian Chappell to Ricky Ponting, they change colour once off field and are always open to having a drink with the other teammates. This is a good trait in any sport where one differentiates on and off field.

There are others he has observed from the box that are clubbed separately and include several Sri Lankan players and South Africans, while the last section on the present players has his favourites like Virat Kohli, Rohit Sharma, Ravichandran Ashwin, Ravindra Jadeja, Ben Stokes, Steve Smith and Kane Williamson.

Shastri brings to the forefront some real good cricketers who are almost forgotten today, like India’s four great spinners Erapalli Anantharao Srinivas Prasanna, Bhagwat Subramanya Chandrashekhar, Srinivasaraghavan Venkataraghavan and Bishan Singh Bedi —who had mesmerised the world in their heyday. They are covered in one chapter. He does the same for Dennis Lillee and Jeff Thomson, who would rank as the first feared duo of fast bowlers who set the trend for a pace attack.

This is sheer vintage stuff with black and white photos added in good measure and the contribution of Memon can be found when the past players are covered. There is another chapter on Andy Roberts, Michael Holding and Joel Garner, who were the unplayable West Indian bowlers who dominated cricket in the 1980s. There is ample credit given to Tony Greig, who brought not just life into the commentator box but also commercialised the game through the World Series Cricket franchise which was created by Kerry Packer.

While the coverage is quite comprehensive, surprising exclusions appear, like his contemporary Mohd Azharuddin, who was a classy player though had a controversial end, Krishnamachari Srikkanth, Sandeep Patil and Navjot Sidhu. They are presumably inadvertent omissions that happen when the canvas is particularly broad. But it still makes this a must-keep book for all cricket lovers of all ages.

Star Gazing: The Players in My Life

Ravi Shastri with Ayaz Memon
HarperCollins
Pp 299, Rs 699

On ETNow debate on sensex nearing 60000

 https://www.timesnownews.com/videos/et-now/shows/retail-investors-carrying-the-stock-market-bull-run-india-development-debate/110107

The PLI principle – Progressive approach to providing incentives to industry. Financial Express 21st September 2021

 For the government, giving conditional incentives seems clearly the way to make money work. A performance yardstick helps in sift through players. The first sense of such an approach was when conditional cash transfers were made to households in Latin American countries; these ensured that children went to school or had regular medical check-ups. In India, the mid-day meal scheme is an example as the free meal ensures that parents send children to school. This worked well for girls, especially from the lower income groups, who otherwise would not be allowed to go to school.

The PLI is hence a very progressive approach to providing incentives to industry. How it is interpreted by the global community remains it to be seen, because it directly gives cash to companies that meet certain performance parameters. It can be defended as not being a subsidy, such as those in agriculture where inputs are given virtually free to farmers. The PLI has been crafted to encourage domestic production, against importing the product from other countries. It doesn’t distort prices but makes industry more competitive.

This should help to pass the barrier. This can be pursued in other areas too to make government expenditure more effective. The government had offered alternative corporate tax rate schemes to companies (22% against 30%), and the observation was that, while they did make use of the benefit, there was little evidence that it enhanced efficiency or led to higher investment. In this context, the government can make tax benefits conditional where companies that are able to generate investment of a certain minimum amount along with production and employment performance (PLI talks of the first two components) can get a tax refund.

This will ensure companies invest more instead of using the benefit of lower taxes for paying higher dividend or piling up reserves. Indeed, there was a time when the tax laws had the concept of investment reserve that could be deducted from profits before tax. The compensation through a refund will ensure that the companies contribute to capital formation, which is a challenge today.

A similar idea can be pursued on job creation where units, from SMEs to large corporates, can be given an employment-generation-based incentive with firm targets set. Employment is the critical factor that spurs economies because, in the absence of new jobs being created, demand can’t be sustained. Jobs have been a problem even before the pandemic, where GDP growth didn’t translate into commensurate job creation. With the greater reliance on technology post the pandemic, job creation is rarely on the radar of large corporates. Providing incentives will work well and ensure that the focus is on being fair to labour.

The important part of this story will be how well the PLI works out in the next 4-5 years, the average time framework that has been set for the 13 industries identified in November 2020. Overall, the government has targeted around `2 lakh crore of incentive spread over five years or so. There will be spillovers to the exports sector, especially in pharma, textiles, etc, though the initial focus was more on import substitution through higher domestic production.
As the idea catches on, the government could also use the PLI scheme to change the cropping pattern in India which is heavily skewed towards rice and wheat as they have MSP-based procurement. This can help farmers to migrate to crops like oilseeds and pulses where we are more vulnerable and help in conserving water. If this is accepted conceptually, the details can be worked with the panchayats for implementation.

The case for cryptocurrency to be outlawed until we regulate it: Mint 20th September 2021

 Gold has no intrinsic value, but its scarcity and acceptability have created a pricing mechanism for it. Theoretically, any stone of any colour found only in select regions that can be used as an ornament will gather value from scarcity and acceptability. The same is true of cryptocurrency. There are willing buyers and sellers of something that has come from out of the blue. The idea has gained strength with the government of El Salvador announcing that it holds Bitcoin. The corollary is that if a government believes in it, no one can be left out and its use may become a habit.

Bitcoin, created by Satoshi Nakamoto, who has not yet been identified, is the most popular cryptocurrency. Despite its cryptic origin, Bitcoin is widely traded and a force to reckon with in financial markets. Other currencies have emerged with fancy names such as Ethereum, Litecoin and Dogecoin. While we may have to accept this wave, the broader question is whether they should be allowed to circulate.

The main purpose of a currency is to serve as a medium of exchange for transactions. Logically, the reins of such an instrument must be with a country’s central bank as we cannot have multiple currencies operating within a jurisdiction. In India, we must surrender foreign exchange beyond a limit to the Reserve Bank of India and cannot buy goods and services domestically with dollars or euros. This is the edifice of a currency system, which provides the basis for monetary policy. But today, interestingly, one can pay for hotels in Thailand or insurance in Switzerland with Bitcoin. Cryptocurrency is being used as a medium of exchange. This is bad news for central banks. If everyone uses cryptos for transactions, monetary policy would become superfluous.

The genesis of such currencies lay in the perception that central banks and governments had mismanaged economies by printing too much currency, which was what the US Federal Reserve did through quantitative easing, later followed by other central banks. The roll-back of all this easy money is now a problem, as it can generate turbulence in financial markets.

The concept of cryptocurrency seeks to overcome such a problem by generating a finite—yet infinite—stream of coins through blockchain technology. It’s finite because there is typically a cap on final currency units, but it’s infinite as the new coins generated would be at a proportion of the remaining balance, and this never changes. But their anonymity of use creates a conundrum, as the antecedents of a payment-maker can’t be known. Because identity gets concealed, such currencies serve as useful conduits for drug money. Therefore, it would be injudicious for governments to legitimize cryptocurrency as a medium of exchange.

An interesting implication of this was that there was nothing sacrosanct about Bitcoin, and so came a plethora of other cryptocurrencies. There are around 6,000 of them presently, although probably not more than 10 are actively being followed and traded.

How about crypto as an investment? If one can invest in stocks, race-horses and gaming, then why not in such currencies? Many things hold value that aren’t backed by anything but market perception. This is not too different from betting on sports or elections, in which there are no fundamentals driving the price. The argument here can be that if we permit these currencies as investment avenues, then all activities of this nature should be made legitimate (and taxed). Even betting on Indian Premier League matches can be seen as an investment. What’s important is that tax authorities should be aware of such transactions, lest they become ‘hawala’ deals where the gains escape taxation. There is already a lot of scepticism over participatory notes floated by foreign portfolio investors on concerns that Indians could be rerouting foreign exchange through them.

There is a strong case for banning cryptocurrencies, though tracking their activity could be a challenge. Or, if we allow them as investment avenues, investors should make full disclosures so that all transactions are taxed—under GST as well as capital gains.

There are two major threats for governments and central banks. First, while such transactions operate outside the financial system, all these currencies are denoted in dollars. This means that investors are using formal channels to gather dollars to pay for these cryptocurrencies. Therefore, any shock in the Bitcoin market can seriously disrupt the formal financial system.

The second is even more serious. If cryptos are legitimized, there is nothing to stop entities from starting a parallel crypto-banking system, where they accept deposits from holders and pay an interest rate which is higher than what one gets from a bank and use the same as a peer-to-peer lending platform. This can go on without authorities noticing.

The government of India has been relentlessly going after black money with measures like demonetization, which proved unsuccessful despite its boldness. Allowing cryptos would only encourage black money to be generated and stashed away from the regulatory system’s reach. Good reasons exist to ban them until we can put in place an appropriate regulatory framework.

ON Bloomberg TV : 17th September 2021

 https://www.bloomberg.com/news/videos/2021-09-17/care-ratings-madan-sabnavis-on-indian-economy-inflation-video

India needs to meet some more qualifications in the foreign investment arena : Economic Times 16th September 2021

 https://economictimes.indiatimes.com/opinion/et-commentary/view-india-needs-to-meet-some-more-qualifications-in-the-foreign-investment-arena/articleshow/86272043.cms

NARCL: Another brick in the wall; not too different from other ARCs: Business Standard : 16th September 2021

 National Asset Reconstruction Company Limited (NARCL) is another attempt being made to resolve the NPA issue. DRTs, Lok Adalats, ARCs and IBC have all been routes chosen by the government in the past to take on the bad loans of banks so that they could concentrate on banking rather than resolving bad loans. The idea is good to have a bad bank, even though the future is uncertain as the asset reconstruction companies have not had a great time on the street. IBC too has witnessed diminishing returns literally with the recovery rate coming down as the issue gets complex with delays in resolution. How is NARCL different?

Two things stand out. First, it is being set up by public sector banks, which makes a difference insofar as banks will be willing to sell their assets in return for cash/securities. Earlier, the challenge was on the pricing where the company would talk of deep haircuts which the bank was not willing for. Now, with the transaction being through banks there would be more willingness to come forward. The guarantee will ensure that at the time of liquidation or resolution, the difference between the value at this point of time and the security value will be made good by the government.

The second is that the government is playing a role here by giving a guarantee to the securities that are being issued by NARCL when it takes over the bad loans. The present formula will be 15% in cash and 85% through securities that are guaranteed by the government. There is talk of Rs 2 trillion of NPAs being addressed through this route with the guarantee being Rs 30,600 crore to begin with.

What the government has outlined is the structure of the new organisation. But is it different from the other ARCs? The answer is not really, as conceptually they will do the same job and look to resolving the bad assets. The initial assets bought by NARCL will be those that have been fully provided for, which is good for its working as this is an experiment on an existing model and the success will finally be dependent on how much is the recovery.

IBC has had superior results compared with ARCs and DRTs and one can be skeptical on whether the realisation will be very different. Time will tell. But having several routes for NPA resolution has both advantages and disadvantages as the decision will finally be taken by the banks. The positive part is that having alternative systems widens the scope for resolution given the volume of NPAs that is outstanding.

The disadvantage is that this can lead to a situation where banks can arbitrage between NARCL and IBC. IBC is more time bound and hence may look stricter while NARCL is still a concept and would tend to be more flexible. There could also be pressure put by the defaulting company to avoid going to the IBC and using the NARCL route and this may be acceptable because to begin with one would not know how successful this institution in terms of recovery would be. Further having more options (even though NARCL is still to be tested) may just lead to dilution of credit standards just at the time when the system is getting out of the morass of NPAs. This is a pitfall which should be avoided at all costs.

The importance of animal spirits: Business Line 7th September 2021

 

The government has given a push through the PLI and Atmanirbhar schemes, but more stimulus by way of capex is needed

The government has given a clarion call for reviving the animal spirits in the economy, and India Inc ha responded, too. If the spirit is kept alive, there should be a turnaround in investment, which has been pending for a while. The government is right in asking for such a revival given that the PLI (Production Linked Incentive) scheme has been implemented in a big way and several other measures have been invoked under Atmanirbhar Bharat schemes.

The support of the government is palpable and consistent with the ideology of rewarding performers. The PLI does just that, where a certain predefined level of investment and incremental turnover over a time-frame for various sectors (13) get a reward in terms of a return of 4-6 per cent of the turnover.

The gross fixed capital formation rate in the country has declined continuously from 34.3 per cent in 2011-12 to 27.1 per cent in 2020-21. Therefore, the problem with investment is not the occurrence of the pandemic but an inherent demand-supply mismatch which was exacerbated by the NPA (non-performing asset) issue. Neither the Central nor State governments has been serious about capex targets, which has pushed back investments. All these knots must be untied. There are two parts to this puzzle: The first is where does investment originate, as there is a tendency to associate it with manufacturing. The second pertains to the various challenges that have kept investment back.

The Table provides the share of various sectors in gross capital formation as of 2019-20. It shows that investment is not just limited to steel, cement and auto sectors adding to their capital. It is broad-based. Real estate, which includes residential buildings, is important and must be supported by increased purchasing power and credit.

The government and the RBI have plugged the credit part but post the moratorium and uncertain future of individuals in the organised sector, this sector looks shaky today.

 

Capacity utilisation

Manufacturing probably is well on course, but would be dependent on the capacity utilisation rate. Ideally, a rate of 78-80 per cent is a threshold that leads to higher investment. The level of 69.4 per cent as of March means that generalised utilisation level is low, while it could be higher for some sectors like steel. Capital goods sector is still downbeat, and isn’t attracting further investments.

Transport, storage, and communication have their specific challenges. With the lockdown in force and movement of people still affected, the willingness to invest in transport (air and road) is much lower today. Unless there is more certainty about the future, companies are less likely to invest in new aircraft or buses and would confine themselves to existing fleet.

The lockdown has severely curtailed the activities of the services sector, too, especially trade and hotels. This has meant that these sectors are unlikely to make investments any time soon — hotels, malls, restaurants would be generally hoping to first commence activity with at least 60 per cent capacity rate before even thinking of the future. It’s a double-whammy for this sector.

Public administration refers to the government share in investment. Here, notwithstanding all the right noises, the States need to keep pace with the Centre to enable higher capex. The problem is that the States were tied up with the FRBM rules even before the pandemic struck and perforce cut back on their capex to meet the targets. Now there is more leeway provided by the government to the States as they can run a deficit of 4 per cent.

There are special funding outlets for such spending provided by the Centre. However, the uncertainty on tax revenues will continue to make States cautious in spending on capex which has been the case earlier too. It is in this context that economists have been talking of the government dedicating another 1 per cent of GDP as stimulus through capex.

Agriculture is a significant player again in investment, and an area not really recognised. Here land improvement and mechanisation are essential to improve productivity and output in the next couple of years. There must be a lead role played by State governments. At present, the focus is more on providing cash to farmers or employment through the MGNREGS. There is a need to think beyond this.

Power, construction

The construction and power sectors are the traditional infrastructure segments which are driven by the private sector along with the government. Here the problems are twofold. The power sector has high investment already and has problems on the viability of Discoms. Only if this problem is addressed will more investments flow in. Currently, the focus is more on renewables, which is a ‘cleaner’ segment in terms of viability. Construction of roads is a big project undertaken by the government along with the private sector in the PPP mode which is running the course.

The other issue which has to be addressed is the funding part. As seen above, the demand for such investments will time kick off and, hence, the animal spirits will be caged for most sectors. But when the cage is opened, banks and markets must be in a position to finance such investments. Banks today are cherry-picking customers, concentrating on the retail book. Debt markets are more oriented towards the financial sector and must work out ways to assimilate lower rated bonds and not just AA and above rated companies.

Quite clearly once the floodgates open for investments, the financial system must be geared to support this demand to ensure that the path is smooth.

On NDTV

 https://www.ndtv.com/video/news/reality-check/growth-surge-bjp-hype-vs-ground-reality-600244

Panel discussion on GDP on 1st September 2021

Disinvestment, asset monetisation is passé, it's time for land sale,: Free Press Journal: 2nd Sept 2021

 The government has been quite innovative in its quest for raising resources through non-conventional means which go beyond disinvestment. Critics may argue that selling land is akin to selling family gold just like disinvestment has been termed as selling of family silver. But gold, as we all know, is idle value. This plan should be put into action

After an aggressive disinvestment target set for the year, the government has followed up with an ambitious asset monetisation plan. Now there are talks of a possible sale of land of ministries and PSUs. This is a logical corollary as we move from shares, which are a man-made concept, to leasing of property to actual sale of a hard asset i.e. land.

The idea is worth pursuing because the government and its entities own a lot of land both at the Central and state levels. The Government Land Information System (GLIS) indicates 15,531 sq kms of land in 72 land parcels being owned by the Central government, which includes ministries/departments and 116 Central PSUs.

A certain part (one is not sure of the proportion, but it could be as high as one-third of total land) is not being used and remains in the books of the government. This can be used, given that there is a lot of demand for both business and housing in a growing economy. And coming from the government, the valuation would not just be transparent but also have the power to drive real estate prices in future. If a piece of land in New Delhi is being sold or leased by the government for a certain price, that would tend to become the benchmark for other related properties.

Issues involved

There are evidently issues here with such a proposition. The first is that it would be a tough call on whether it should be sold or given for a long lease, of say, 99 years. The asset monetisation plan of the government ensures that after 25 years, the assets come back to the government. For land to evince interest it must be for a longer time period for a judgment call to be taken by the buyer. The government or PSU may not like to sell the land and would prefer a lease, but that would not get adequate resources especially if it is meant to finance infrastructure. Therefore, it is a case of pitching for a lump sum amount or an annuity-like income for a long period of time.

The second, is valuation. We all know very well that the real estate market is very opaque especially when it comes to land. The prices which are officially quoted could be way off the mark and this can be a conundrum for the government or PSU entity. Logically, it must follow the ready reckoner released by the respective states. But this can be lower than the market rate.

Third, as some of the properties are on prime land, especially when it comes to ministries the possibility of these pieces being picked up by a handful of corporates cannot be ruled out. This can create an issue of furthering crony capitalism, which is a sensitive topic today. Given that it will be only the very affluent or India Inc that can buy such property, this risk cannot be eschewed.

Inventory of land parcels

The government should get hold of an inventory of land parcels (which is being done by the GLIS) and have them valued. This would hold for both the government as well as PSU and should be extended to the states too. This, in turn, should be put together before a decision is taken on how to monetize the same. Sale and lease are the two ways out, which each having their pros and cons. Besides, it should be clear on whether this should be sold for commercial, agricultural or residential purposes. Certain pockets of railway land are already being leased for horticulture and this idea can be taken steps further.

The government has been quite innovative in its quest for raising resources through non-conventional means which go beyond disinvestment. Critics may argue that selling land is akin to selling family gold just like disinvestment has been termed as selling of family silver. But gold, as we all know, is idle value. This plan should be put into action.

What can be the next area to be explored? If a new Parliament House is being set up, the older one can be used commercially for sure. How about the Rashtrapati Bhawan with 340 rooms – a potential 10-starred hotel? This is something to ruminate over.

Our banks are mispricing capital: Mint 2nd t September 2021

 https://www.livemint.com/opinion/online-views/our-banks-are-mispricing-capital-and-this-is-simply-unsustainable-11630525603369.html