The setting up of the National Land Monetization Corporation (NLMC) is a progressive step in the quest to implement the government’s asset monetisation programme. The Centre has taken the view that there are assets lying idle with various departments and PSUs that can be better put to use through the monetisation scheme.
How would this work? The NLMC would pool together all the assets in the form of land and buildings owned by the government that can be sold and then implement a plan of either selling these or leasing these out to other parties(primarily be private players). The Railways, for instance, has a lot of land that will probably not be used and can be leased out.
The same holds for PSUs that have either acquired land for expansion and never used it or have legacy assets . There are several units which are non-functional and hence the property owned can be sold.
There is a big opportunity for the government to earn revenue. If the property is sold, it would be equivalent to disinvestment; if leased out, it would provide a non-tax revenue flow. Depending on the government’s priority, the decision can be taken on long leases or sales.
The NLMC is needed because it would otherwise be difficult for each entity or department to carry out the monetisation plan. The SPV set up for this purpose will professionally carry this out. As this idea takes shape and begins to deliver results, states can also consider the same as there are several idle assets that can be put to better use. One example is the several state-run educational institutions where the rooms can be rented out to,say, call centres or private coaching businesses outside of class timings. So far,, there has been no attempt to better use these facilities.
There are, however, some issues that have to be addressed once the NLMC is formed. Valuation is the biggest challenge when it comes to real estate. If land is to be sold, then we need to get the parcel valued and this is where there can be some difficulties.
There are normally state gazettes which provide a valuation. These tend to be different from the market rate. Despite all attempts being made by the government to bring in transparency in real estate transactions, there are still cash payments involved. If the NLMC goes by the official records, then the valuation may be lower–a loss for the government. Independent valuation, which may come up with higher numbers, could be seen as throwing up unrealistic tags and such sales will receive a tepid response.
The other question would be on the mode of sale. Ideally, an auction is the right way to go. We do have templates of what can go wrong with such sales, from the coal and telecom sectors. The auction system fits the bill with the reserve price being probably decided through the valuation exercise. This is to ensure that a due process is followed in the sale process.
The monetisation plan can also be linked with the government’s other priorities so that they are targeted towards specific segments. For instance, the government may be able to link bidders for a land parcel to a specific goal, say, affordable housing or a renewable power plant. A lower reserve price may be considered for some of these projects in the form of a subsidy.
For some of the loss-making companies which are no longer viable, the NLMC can work out modalities of selling out various segments—land, buildings, and plants and machinery—as the government takes a call on dealing with the staff, which can either be provided an exit route or re-deployed in other PSUs.
As we embark on the asset monetisation path, it should be remembered that, ideologically, one cannot go back from this measure. It has to be done in a calibrated manner so that it does not come in the way of future expansion of the PSU, if such plans do come up.
Companies where the government would like to completely exit would be the ones that would qualify for such an asset sale. Hence, an approach similar to disinvestment would be advisable, wherein the government has gradually lowered stakes in companies.
The other issue that pops up pertains to the usage of these funds. Can they be used to finance the budget (which is what happens to disinvestment)? This issue has been debated even in the past where it has been argued that any asset sale should be used for a capital expenditure.
Hence, it is imperative that such proceeds be reserved for future capex and this can be a useful source of financing the National Infrastructure Pipeline.
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