Capital Ideas. Will FM’s asset monetisation plan pay off?

Finance Minister Nirmala Sitharaman, in her Budget speech, said: “Idle assets will not contribute to Atmanirbhar Bharat. The non-core assets largely consist of surplus land with government ministries/departments and public sector enterprises.”

She went on to add: “Monetising of land can either be by way of direct sale or concession or by similar means. This requires special abilities and for this purpose, I propose to use a Special Purpose Vehicle in the form of a company that would carry out this activity. In order to ensure timely completion of closure of sick or loss-making CPSEs, we will introduce a revised mechanism that will ensure timely closure of such units.”

The idea of monetising non-core assets or surplus land is not new. It has been spoken about at various forums and it did find favour with many eminent thinkers. But unlike monetisation of other assets, land is complex and comes with its own challenges.

And, what will this SPV be? How will it be different from a land bank? How will it help the government in revenue generation? Will there be guidance for public sector enterprises for sale of their land? When opting for strategic disinvestment, does land not form part of valuation?

More than a land bank

According to Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, the proposed SPV will be an organisation that would be more than just a land bank; the bank will be like a portal.

Eminent economist and former NITI Aayog Vice-Chairman Arvind Panagariya, who has been talking about monetisation of surplus land for resource generation for some time now, points out that “monetisation of assets can be done via usual auctions that India has deployed in the past in the case of mines and spectrum. In the case of land, one complication is that PSUs often have vast parcels of land. So, for PSUs that must be closed down because they are running perpetually in loss and have no potential buyers, land is their only asset.”

This land turns into a challenge when closing down PSUs, and a simple solution, according to Panagariya, is to include this land in a land bank that the government must maintain. And once this is done, he says, the PSU is left with no assets and closure becomes a simple matter.

“Similarly, profit-making PSUs also have vast parcels of surplus land. This is because the government has often allocated multiple times land to PSUs than they actually need or use. When privatising PSUs, their valuation can get distorted on account of this surplus land. The solution once again is to hive off the surplus land and deposit into the land bank and then proceed with privatisation of the PSU,” he said.

Therefore, the government must then separately auction the land from the land bank on a continuous basis, he said, adding that “it is important not to let the land in the bank idle and, therefore, remain unproductive for too long. Let it come on the market and be productively used.”

The government is well aware of the challenge this will hold. There are two kinds of land — government land and those owned by CPSEs. Now, CPSE land again falls in two categories — owned by listed companies and unlisted units.

“When we do strategic disinvestment, then we take care of such activities…We hive off non-core assets for listed as well as unlisted companies. The whole idea is you spur the National Infrastructure Pipeline,” Pandey said.

On November 16, 2020, DIPAM had signed an agreement with the World Bank for advisory services on asset monetisation. The DIPAM has a framework for monetising non-core assets.

In fact, the government is clear that the ultimate objective of this entire process is to put most assets to productive use. It also wants the CPSEs to be so empowered to develop their monetisation plans.

How you do that? “We need to create consciousness about preparing an asset monetisation plan. We are mandating them to do so. It will be in the performance matrix based on which marks will be allocated to CPSEs for the asset monetisation done, then subsequently for its execution also. In a way we are making the management conscious for raising resources. These resources typically go to the company and not to the government. Receipts for government will come only from government land,” Pandey said.

Well-thought-out one would say. But there are those who feel that it should be clarified where the fund raised will go. Who will handle this money. And what will be the protocol if a PSU wants to do it — do they need the permission of the nodal Ministry or will DIPAM handle it? Besides, there are State PSUs too, will they have a similar protocol?

The government needs to ensure that the funds so generated are either used for infrastructure development or social sectors or to further strengthen PSUs.