Union Cabinet clears National Land Monetization Bill

Amidst the prospects of the LIC IPO getting done in the current fiscal year dimming, the government needs some back-up plans to show new revenue generating sources for the excehquer. On 09th March, the Union Cabinet approved the setting up of the National Land Monetization Corporation (NLMC).

The main purpose of the NLMC will to monetise surplus land and building assets of CPSEs and other government agencies. NLMC will start with a paid up capital of Rs.150 crore and will come under the aegis of the Finance Ministry.

The idea is to monetize non-core assets, idle assets and  underutilized assets of such public sector enterprises so that the government can derive gains through the hidden value in state assets. Most PSUs hold considerable land and real estate assets that are unused and non-core. The cabinet meeting was chaired by Prime Minister Modi.

While the announcement to set up a SPV to monetize the state owned assets was made in the last budget, the government will target state owned assets of Railways, port trusts, telecom and defence, which are all holding substantial surplus land, including prime land. One aim would be to monetize land assets ahead of divestment. The other aim would be to even monetize non-core land assets of existing operational PSU businesses.

Of course, the NLMC is likely to face its own set of challenges. For example, it may be tough to identify revenue streams for most land parcels. Then there is the risk of litigation, dubious title deeds, resolution mechanism, limited interest from investors etc. Also, the post-sale nature of relationship between the investors and the government would also be material. However, it will be a very important step to unlock value in such CPSEs.

The structure would be something like this. NLMC will own, hold, manage and monetise surplus land and building assets of CPSEs. This will include businesses under closure as well as surplus non-core land assets of CPSEs. The NLMC will help to speed up this process and also ensure that the government realizes better overall value from the strategic sale of businesses as well as minority stake sale. NLMC will hand hold the monetization process.

This is likely to be a major leg up to the government revenues. For example, the government had originally targeted Rs.175,000 crore disinvestment revenues for FY22. In the latest budget, that was revised lower to Rs.78,000 crore. Now, if the LIC IPO gets postponed to next financial year, then the government would end up with disinvestment revenues of just Rs.12,425 crore for FY22; that too predominantly from Air India and SUUTI sales.

It is good that NLMC has decided to hire professionals from the private sector. Monetization of land assets is a complex and specialized task and requires in-depth market research, legal due diligence, valuation, master planning, investment banking and land management. These would not be possible without professional support. If the government has to do a thorough job of monetization, it needs top quality professionals with top notch compensation.

Till date, CPSEs have referred around 3,400 acres of land and other non-core assets to DIPAM for monetisation, but the actual worth and monetizable value of this land is yet to be established. There are several CPSEs like MTNL, BSNL, BPCL, BEML, HMT, Indian Railways, Port Trusts and Defence establishments that have substantial surplus land. Some of the numbers are actually mind-boggling. Consider these.

Indian Railways sits on 11.80 lakh acres of land while the Defence establishments sit on 17.95 lakh acres. These are huge even by conservative standards. A lot will depend on how quickly the government moves, how profitably they implement and how they iron out the irritants along the way.