On March 9, the Union Cabinet approved the formation of the National Land Monetisation Corporation (NLMC) to handle the sale of surplus land and buildings of the government, its agencies and Central Public Sector Enterprises (CPSEs).
Public assets such as roads, airports, railways, power transmission lines, pipelines, shipping terminals, mobile towers and other land and building financial assets are controlled by departments of the central government, respective state governments and PSUs.
After the meeting, chaired by Prime Minister Narendra Modi, the government said that the NLMC will be set up as a wholly-owned Government of India company with an initial authorised share capital of Rs 5,000 crore and paid-up share capital of Rs 150 crore. According to an official statement released after the cabinet meeting, the Department of Public Enterprise, Ministry of Finance, will set up the company and act as its administrative ministry.
NLMC was first proposed in the Union Budget 2021-22 by Union Finance Minister Nirmala Sitharaman. In her budget speech, she had said that monetisation of non-core assets—comprising largely of surplus land with ministries, departments and public sector enterprises—could be done either through a direct sale, concession or by similar means.
NLMC will provide technical advice to the government in the implementation of the asset monetisation programme. CPSEs may transfer their non-core assets to NLMC to manage and monetise them. NLMC will also support and undertake monetisation of excess land and buildings of CPSEs and other government institutions. This will speed up the closure process of CPSEs and smoothen their strategic disinvestment process. NLMC will also advise and support other government entities (including CPSEs) in identifying their surplus non-core assets and monetising them in a professional and efficient manner to generate maximum value realisation.
The problems NLMC might face include lack of identifiable revenue streams in particular land assets, dispute resolution mechanism, various litigations and lack of clear titles and low interest among investors in remote land parcels.
CPSEs are those companies in which the direct holding of the government or other CPSEs is 51% or more. At present, CPSEs hold considerable surplus, unused and under-used non-core assets in the nature of land and buildings. For CPSEs undergoing strategic disinvestment or closure, monetisation of the surplus land and non-core assets is important to unlock their value. CPSEs have referred around 3,400 acres of land and other non-core assets to the Department of Investment and Public Asset Management (DIPAM) for monetisation.
With monetisation of non-core assets, the government would be able to generate substantial revenues. This will also enable private sector investments, new economic activities, boost the local economy and generate financial resources for economic and social infrastructure. The new Corporation will also help carry out monetisation of assets belonging to public sector firms that have closed or are lined up for a strategic sale. In 2021-22, the government raised Rs 12,423.67 crore through various modes of disinvestment.
The NLMC board will comprise senior government officers and eminent experts, while its chairman and non-government directors will be appointed through a merit-based selection process. Technical expertise will also be provided. The NLMC will have minimal full-time staff, hired directly from the market on a contract basis. NLMC will hire professionals from the private sector just as in the case of similar specialised government companies.
Asset monetisation is the process of creating new sources of revenue for the government and its entities by unlocking the economic value of unutilised or underutilised public assets. As per latest data in the Economic Survey 2021-22, monetisation of non-core assets of MTNL, BSNL, BPCL, BEML and HMT are currently at various stages of the transaction.
Asset monetisation may face challenges, including lack of identifiable revenue streams in various assets. Slow pace of privatisation in government companies and less-than-encouraging bids in recently launched public-private partnerships initiative in trains indicate that attracting private investors” interest is not easy.
Other asset-specific challenges include low level of capacity utilisation in gas and petroleum pipeline networks. Regulated tariffs in power sector assets and low interest among investors in national highways below four lanes are other bugbears.
In 1951, there were just five PSEs in India. By March 2021, the number of such enterprises had increased to 365, including seven new defense PSUs. These enterprises represented a total investment of about Rs 16.41 lakh crore as of March 31, 2019. Their total paid-up capital then stood at about Rs 2.76 lakh crore. CPSEs have earned a revenue of about Rs 25.43 lakh crore during 2018-19.
In India, the idea of asset monetisation was first suggested in 2012 by a committee led by economist Vijay Kelkar. The committee had recommended that the government should start monetisation to raise resources for further development and financing infrastructure needs.
The government of India announced the National Monetisation Pipeline (NMP) worth Rs 6 trillion on August 23 in 2021. This scheme aims to serve as a roadmap for the asset monetisation of several brownfield infrastructure assets across sectors such as roads, railways, aviation, power, oil and gas and warehousing.
NMP is a central portal that could act as a land bank housing information about all assets that have been lined up for utilisation by strategic investors or private sector companies. It will also assess the potential value of unused and underutilised government assets.
All the public sector undertakings have been awarded additional financial autonomy. These companies are government companies that have comparative advantages, giving them greater autonomy to compete in the global market so as to “support [them] in their drive to become global giants”.
Financial autonomy was initially awarded to nine PSUs as Navaratna status in 1997. Originally, the term Navaratna meant a talisman composed of nine precious gems. Later, this term was adopted in the courts of Gupta emperor Vikramaditya and Mughal emperor Akbar as the collective name for nine extraordinary courtiers at their respective courts.
In 2010, the central government established the higher Maharatna category, which raises a company’s investment ceiling from Rs 1,000 crore to Rs 5,000 crore. The Maharatna firms can now decide on investments of up to 15% of their net worth in a project, while Navaratna companies could invest up to Rs 1,000 crore without explicit government approval.
—By Shivam Sharma and India Legal Bureau