National Land Monetisation Corporation (NLMC): Functions and Benefits – Explained, pointwise

Introduction

The Union Cabinet has approved the creation of a new company to hold and monetise surplus land and buildings of the government agencies and the Central Public Sector Enterprises (CPSEs). The concept of National Land Monetisation Corporation (NLMC) was earlier announced by the Finance Minister of India in her budget speech of 2021. The new company will have the highest degree of professional standards to do efficient land monetisation. It would help the CPSEs and other government agencies to effectively realise the true value of un-utilised or underutilised land parcels.  

What is Asset Monetisation?

Monetisation refers to the process of turning a non-revenue-generating item into cash. In the context of monetisation of public assets, it means the process of creating new sources of revenue for the Government and its entities by unlocking the economic value of un-utilised or underutilised public assets. A public asset can be any property owned by a public body, roads, airports, railways, stations, pipelines, mobile towers, transmission lines, etc. and land that remains un-utilised.

Land Monetisation simply involves monetisation of surplus land and building assets. Monetising of land can either be by way of direct sale or concession or by similar means.

Exhibit: The virtuous cycle of Asset Monetisation

(Adapted from: NITI Aayog National Monetisation Pipeline Guidebook)

What is the current status of Monetisation in India?

The NITI Aayog has identified two kinds of assets under the NMP, Core and Non-core Assets. Assets which are central to the business objectives of such entity and are used for delivering infrastructure services to the public/users are considered as Core Assets. Infrastructure asset classes such as transport (roads, rail, ports, airports), power generation, transmission networks, pipelines, warehouses etc. are the core assets. The other assets, which generally include land parcels and buildings, can be categorised as non-core assets.

Source: NITI Aayog National Monetisation Pipeline Guidebook

While the monetisation of core assets is steered by NITI Aayog, the initiative for monetisation of non-core assets has been hitherto steered by the Department of Investment and Public Asset Management (DIPAM). At present, CPSEs hold considerable surplus, unused and underused non-core assets in the nature of land and buildings. Under the National Monetization Pipeline launched in August 2021, the public sector enterprises have realised about INR 26,800 crore as of February 2022; with another INR 15,000 crore to be realised soon by the Ministry of Road Transport and Highways. The target for FY23 is INR 1.62 trillion.

So far, CPSEs have referred 3,400 acres of land and other non-core assets for monetisation. This includes various CPSEs like MTNL, BSNL, BPCL, B&R, BEML, HMT Ltd, Instrumentation Ltd.

What is National Land Monetisation Corporation?

The National Land Monetisation Corporation (NLMC) is being set up with the purpose of monetising surplus government-owned land. It is being set-up as a Special Purpose Vehicle (SPV) and will be set up as a wholly-owned Government of India company. It will have an initial authorised share capital of INR 5,000 crore and paid-up share capital of INR 150 crore.

The new company will be set up under the administrative jurisdiction of the finance ministry. The Board of Directors of NLMC will comprise senior Central Government officers and eminent experts to enable professional operations and management of the company.

The chairman, Non-government directors of the NLMC will be appointed through a merit-based selection process. It will be a lean organisation with minimal full-time staff, hired directly from the market on a contract basis.

What would be the role of the NLMC?

The National Land Monetisation Corporation will undertake monetisation of surplus land and building assets of Central Public Sector Enterprises (CPSEs) and other government agencies.

It is expected to own, hold, manage and monetise surplus land and building assets of CPSEs under closure and the surplus non-core land assets of government-owned CPSEs under strategic disinvestment.

It 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.

It will hire professionals from the private sector just as in the case of similar specialised government companies like the National Investment and Infrastructure Fund (NIIF) and Invest India. This would be done as real estate monetisation requires specialised skills and expertise in areas such as market research, legal due diligence, valuation, master planning, investment banking and land management.

It is expected that NLMC will act as a repository of best practices in land monetization.

Why should the government focus on Land Monetisation?

Huge potential: There exists huge portions of land that are lying vacant with government agencies or are being utilised in an improper manner. Various estimates in the public domain peg the extent of land held by various government agencies in excess of 5 lakh hectares.

Additional Revenue: With monetization of non-core assets, the government would be able to generate substantial revenues by monetising unused and under-used assets.

Realising the true value of Disinvestment: For CPSEs undergoing strategic disinvestment or closure, monetisation of these surplus land and non-core assets is important to unlock their value.

Reviving the Economy: Prudent monetisation will help in reviving the Indian economy that has witnessed a brutal setback after the COVID-19 pandemic. Monetisation will not only generate greater income for the government but will also encourage private investments and job creation.

Social Development: With additional revenue in hand, the government would be in a better position to spend on education, health and other social sector areas without raising debt for the same. India is already expecting a Fiscal Deficit of 6.9% in FY2021-22.

What is the rationale behind its creation of NLMC?

Meeting Monetisation targets: The corporation will help in meeting the target of the National Monetisation Pipeline. The pipeline envisages to generate Rs 6 lakh crore through core assets of the central government over a four-year period from 2021-22 to 2024-25. Top five sectors including roads, railways, power, oil and gas pipelines and telecom account for around 83% of the aggregate value.

Source: Business Standard

Efficiency enhancement: The Corporation will fast track monetisation of land and non-core assets of public sector entities. Thus enabling delivery of maximum outcome in minimum time.

Bridge the Skill Gap: The desired skill set to take on the responsibility of management and monetisation of non-core assets in government is limited. The proposed SPV will have dedicated experts and personnel to fill this skill gap.

Attain International Parity: The SPV will carry out the monetisation of the land and other non-core assets in line with international best practices. This would result in attracting greater investment into the projects.

Flexibility in Personnel Management: NLMC will have minimal full-time staff, hired directly from the market on a contract basis.  Flexibility will be provided to the Board of NLMC to hire, pay and retain experienced professionals from the private sector; thus providing a greater degree of Flexibility in Personnel Management which is traditionally not available in government departments. 

What more should be done?

First, there is indeed a critical need to evaluate the land holdings and prioritise those with significant market opportunities to unlock value in the short term.

Second, the modalities of transferring the surplus land and buildings to NLMC should be duly finalised and released in public domain.

Third, there should be prudent emphasis on monetising land in rural regions as well. This would help in driving greater investments and curb the rural-urban divide.

Fourth, the government should also focus on improving the land dispute resolution process as many government lands are entangled by litigation. Tools like Arbitration, Mediation etc.. can be leveraged for effective resolution.

Conclusion

The setting-up of NLMC can be a game changer in the domain of Land Monetisation. It would not only provide the necessary support to PSUs and other government agencies but would also help in boosting economic activities and job creation in the country.

Summary in Graphics

Source: The Hindu