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Context

Earlier this month, the Union Cabinet has approved the setting up of the National Land Monetization Corporation (NLMC) to monetize surplus land and building assets of Central Public Sector Enterprises (CPSEs) and other agencies linked to the Government.

In this article, we will study how effective is this going to be, considering land monetization is a complex process, what potential challenges could NLMC face in the whole process, what roles and responsibilities will this separate agency be entrusted with?

What is NLMC?

The NLMC 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.
It will be set up with an initial authorised share capital of ₹5,000 crore and a paid-up capital of ₹150 crore.
Surplus land and building assets of CPSEs are expected to be transferred to the NLMC, which will then hold, manage and monetise them.

Functions of NLMC

The NLMC will-

Monetize underutilised or unused land parcels of Central Public Sector Enterprises (CPSEs)
Facilitate the monetisation of assets belonging to PSUs that have ceased operations or are in line for a strategic disinvestment
Act as an advisory body and support other government entities and CPSEs in identifying their surplus non-core assets

Benefits offered

Speeding up disinvestment: The setting of the NLMC will speed up the closure process of the CPSEs and smoothen the strategic disinvestment process.
Productive utilization of stagnant assets: It will also enable productive utilisation of these under-utilised assets by setting in motion private sector investments.
Easing up of finances: It will boost new economic activities such as industrialisation, boosting the local economy by generating employment and generating resources for potential economic and social infrastructure.
Maximum value realization: It will help monetising them in an efficient and professional manner, maximising the scope of value realisation.

What does monetization 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
Promise of steady investment into the asset, and
Title rights to the monetised asset

Why need monetization?

There are different reasons why the government monetizes its assets.

Revenue shortfall: One of them is to create new sources of revenue.
Pandemic damage control: The economy has already been hit due to the coronavirus pandemic and revenues are essential to fulfil the Modi government’s target of achieving a $5 trillion economy.
Risk management: Monetisation is also done to unlock the potential of unused or underused assets by involving institutional investors or private players.
Capital generation: 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.

Need for NLMC

Professional dealing in negotiations: The firm will hire professionals from the private sector with a merit based approach
Market expertise: Asset monetisation of real estate requires expertise in valuation of property, market research, investment banking, land management, legal diligence and other related skill sets.
Global best practices: 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 monetization?

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.

Challenges to the NLMC

(a) Volatile market situation

The performance and productivity of the NLMC will also depend on the government’s performance on its disinvestment targets.
For example, 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.

(b) Issues with the transfer of rights

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.

(c) Unattractiveness of PPP Model

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.

Criticisms of NLMC

It militates philosophy of privatisation: PM has propounded more than once: the business of government is not business. Setting up a CPSE to help sell or shut down the existing CPSEs doesn’t appear quite congruous.
Privatisation process is not new: Dozens of companies have been sold; in many more, minority stakes have been offloaded. So, if the existing process has served so well, why try something new?
Conflict of interest: NLMC may have a turf war with the Department of Investment and Public Asset Management (DIPAM) which is tasked with similar functions.
Nature of NLMC: The government organs tend to acquire a life of their own. The National Anti-Profiteering Authority (NAA) is a case in point. It was supposed to be wound up in two years but still getting extensions.
Public land being sold: Publicly owned lands in a democracy are literally owned by the public. They are held in trust on behalf of the public by governments or government agencies.
Sale of crucial assets: Land holdings are one of the government’s most significant tangible assets, whether owned by central ministries, state governments, public sector undertakings or local bodies.

Way forward

There is a need to monetise non-core unused and under-used assets that would help the government generate substantial revenues.
For CPSEs undergoing strategic disinvestment or closure, monetisation of these stagnant surplus land and non-core assets is important to unlock their value.
There is a need to create a comprehensive inventory of public land and synergize the existing Government Land Information System (GLIS).