National Land Monetisation Corporation

Description

Disclaimer: Copyright infringement not intended.

Context:

The Cabinet has approved the formation of 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).

NLMC:

NLMC will be a wholly owned central government entity.
The special purpose vehicle will be set up by the Department of Public Enterprise and the Ministry of Finance.
NLMC will be a lean organization with minimal full-time staff, hired directly from the market on contract basis.
Flexibility will be provided to the Board of NLMC to hire, pay and retain experienced professionals from the private sector.
NLMC's board will include senior central government officers and eminent experts, with the chairman and non-government directors appointed via a merit-based selection process.

Surplus Non Core Assets:

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 these surplus land and non-core assets is important to unlock their value.

Proposed Functions of NLMC:

The NLMC will undertake monetisation of “surplus land” and “building assets” of Central public sector enterprises (CPSEs) as well as government agencies through a direct sale.
NLMC will also help carry out monetisation of assets belonging to public sector firms that have closed or are lined up for a strategic sale.
Apart from this, NLMC will advise other government entities to identify their non-core surplus assets and ‘generate maximum value’ by monetising them in a professional and efficient manner.
NLMC will undertake surplus land asset monetisation as an agency function.

Significance:

CPSEs hold ‘considerable surplus, unused and under used non-core assets’ in the form of land and buildings.
This will speed up the closure process of the CPSEs and smoothen the strategic disinvestment process.
With monetisation of non-core assets, the government would be able to generate substantial revenues by monetising unused and under-used assets.
The proposal is in pursuance of the Budget announcements for 2021-22, which included an ambitious National Monetisation Pipeline to garner revenues from public assets.

STRATEGIC DISINVESTMENT

When the government decides to transfer the ownership and control of a public sector entity to some other entity, either private or public, the process is called strategic disinvestment. The Department of Investment and Public Asset Management (DIPAM) which comes under the Finance Ministry defines Strategic disinvestment as follows:

“Strategic disinvestment would imply the sale of a substantial portion of the Government shareholding of a central public sector enterprises (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.

STRATEGIC DISINVESTMENT VS DISINVESTMENT

Selling minority shares of Public Enterprises, to another entity be it public or private is disinvestment. In this the government retains ownership of the enterprise. On the other hand, when the government sells majority shares in an enterprise (above 50%) that is strategic disinvestment/sale. Here, the government gives up the ownership of the entity as well. Government carefully choses enterprises to be put up for sale.

CORE VS NON CORE ASSETS

Core assets include the assets that are critical to a company and its business operations. In other words, core business assets are needed for the company to generate revenue and remain profitable. Core assets can include equipment, machinery, factories, and distribution channels, such as vehicles. Core assets can also include a trademark or a patent.

Conversely, non-core assets are the assets that are not critical to the production of a company's goods, nor are they critical to generating revenue. Non-core assets are often sold when a company needs to raise cash.

Typically, non-core assets can include the following:

§ Real estate

§ Commodities

§ Idle equipment

§ Natural resources

§ Investment securities

§ Land that's not being used

As mentioned earlier National Land Monetisation Corporation (NLMC) is in pursuance of the ambitious National Monetisation Pipeline.

National Monetisation Pipeline:

“National Monetisation Pipeline” developed by NITI Aayog was launched under Union Budget 2021–22 based on the mandate for ‘Asset Monetisation’.
NMP estimates aggregate monetisation potential of Rs 6 lakh crores through core assets of the central fovernment, over a four-year period, from FY 2022 to FY 2025.
The top 3 sectors (by estimated value) are Roads (27%) followed by railways (25%) and power (15%).
NMP has been planned to be co-terminus with the remaining four-year period of the National Infrastructure Pipeline.

Asset monetisation: The concept

Asset monetisation, also commonly referred to as asset or capital recycling, is globally a widely used business practice.
This consists of limited period transfer of performing assets to unlock “idle” capital and reinvesting it in other assets or projects that deliver improved or additional benefits.
Governments and public sector organisations, which own and operate such assets can adopt this concept.
This will help in meeting the ever-increasing needs of the population for improved quality of public infrastructure and service.
Asset monetization can be undertaken through a range of instruments/ tools broadly categorised into two approaches:
Direct Contractual Approach such as PPP Concessions, and
Structured Financing models such as Infrastructure Investment Trust (InvIT), Real Estate Investment Trust (REIT).

Why is it important?

Government finances are stretched, especially post the massive economic jolt dealt by Covid.
Public welfare measures require funding. With the fiscal deficit already stretched to its limits, the government needs to come up with alternative ways to generate revenue.
NMP helps realize value from idle assets, without the Centre transferring ownership of public sector assets to private parties for good.
Primary ownership of assets under NMP will continue to be with the government. Funds from NMP will be used for infrastructure creation under the National Infrastructure Pipeline.
Private entities will use the asset for a said tenure, at the end of which they will be handed back to the public authority.

https://www.thehindu.com/news/national/cabinet-nod-for-new-firm-to-monetise-land-assets/article65208630.ece