The central and state
governments are faced with an acute challenge of raising revenues. With the
Central Government committed to lowering Direct taxes and rationalizing
Indirect Taxes through implementation of GST, resources are becoming scarcer.
The Government needs to come up with newer ways of managing its cash flows
without burdening the common man.
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| Image Credit: www.thehindu.com |
One of the most
underutilized assets in the country is Land. This is also because land for
India and Indians is a very emotive subject causing strong feelings amongst
people. Monetization of land assets is usually unpopular, a long drawn process
and does not have any clear process. Therefore land as an asset is hardly ever
monetized until and unless the situation is really dire.
Asset monetization is
basically a business transaction that converts a dead/idle asset into an income
generating one. This “unlocking of value” where economic benefits can be
derived from embedded operational assets should be undertaken only after due
diligence and the viability and benefits are demonstrated
Till date the land asset
monetization was heard of only in context of recapitalization of the
Non-performing/stressed assets for the banking system. But, slowly and surely
this is changing and today it is also being heard of in the context of
unlocking value from a zero-revenue asset.
An approach that is
process-driven to monetizing the realty assets of Government(land and
buildings) could help drive significant annuity revenues for the government. If
thorough processes can be put in place to help drive the entire exercise, it
could serve as a benchmark for others who may want to unlock similar values.
Land monetization has
suddenly caught people’s fancy and there are all sorts of numbers being bandied
around on how for example, even if a parcel of the total land can be monetized,
its value will be bigger than India’s GDP. Some other numbers state that around
4000 sq kilometers of land is lying idle with state government PSUs itself. One
needs to be careful of the numbers since it isn’t an easy 2+2 that makes 4
here. Not all land can be monetized equally and this is something that all
analysts seem to have completely forgotten.
A process needs to be set
up by which, as a first measure, detailing the land assets for all government
organizations should be undertaken. Once a detailed list of all such assets can
be streamlined, it will help bring transparency to the process.
Only after a thorough
mapping, will the question of what can be monetized come up. Consulting
companies could then get involved in the process so that the type of “value
that can be unlocked” can be detailed for different parcels of land. These
could be the very foundation on which public/private participation could be
sought.
Realty companies may be
interested in being a part of such an exercise since it gives them an entry
into locations that are developed and may help drive businesses. Ultimately,
that should be the sole aim of the exercise – the government should help drive
businesses and raise annuity revenues for itself in the bargain.
For example, government-run
company MTNL, which operates telecom services in Delhi and Mumbai, has a
reported 250 acres of land in two of the biggest metros in India. Partnering
with a company that can help lease the office space to companies could help the
struggling company with a healthy annuity income. BSNL is reported to have
carried out some work for identifying and monetizing land parcels across the
country. Both the telecom companies under the Communications Ministry could
focus on a turnaround strategy after such rental income can add cushion to
their balance sheet.
There has been a move in
the past to monetise surplus land parcels with government owned companies.
According to one estimate, 60 sick government companies together owned nearly
50,000 acres of land that could be monetised. Opposition from labour unions is
often cited as one problem that has plagued the effort. If all the workers can
be part of the solution and can see their own benefit in the changes that are
sought to be brought about, it may be possible to get their buy in.
Land parcels like these can
be used to bring around a sea change in the residential or commercial landscape
of major cities. Should it be so devised, they could be used for budget housing
projects with some commercial real estate opportunities so that it can be
monetised too. If the government does go ahead with a project of this kind, it
will need to be executed with clockwork precision so that the cost does not
spiral out of control. The social implications of such a landmark could set a
benchmark for various state governments too, if executed well.
The government can consider
a lease-only model so that it can reap the benefits of annuity income. If one
successful project can be showcased, its learning can be used to drive other
similar projects in states.
Earlier efforts to raise
resources through disinvestment have kicked up storms over allegations of
assets being undervalued and the process being fixed. In order to prevent a
repeat of the past, sufficient checks and balances should be incorporated in
such an exercise and all the stakeholders including the public should be
sensitised. If properly implemented then monetisation of land can be a game
changer for Government revenues.
http://realty.economictimes.indiatimes.com/realty-check/monetizing-land-assets-for-government/1837
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