Let Canada’s model of land monetization inspire ours4 min read . Updated: 29 Apr 2021, 01:55 AM IST
- The country has taken an SPV approach to selling state property and its success holds lessons for us
Today, new approaches of asset management have emerged to protect the public interest while maximizing revenue generation that are being considered by governments around the world. India has also adopted a new asset-management approach, and is moving towards the monetization of unutilized and underutilized assets of central public sector enterprises (CPSEs)/public sector undertakings (PSUs), apart from other government assets and immovable ‘enemy property’, in an effort to manage public resources better. The government has identified this as a potential source of revenue to finance its ambitious infrastructure programme, and is exploring direct sales, leasing and other options.
Asset monetization generates new sources of revenue by unlocking the economic value of poorly used assets. The assets of CPSEs/PSUs and sundry government departments are diverse and spread across the country. The government believes monetization of these assets could generate much-needed funds. For the purpose, the government has slotted all its assets into four groups: a) Land and buildings; b) Brown-field operational assets like pipelines, roads, mobile towers etc.; c) Financial assets such as equity shares, debt securities, hybrid/structured finance assets units; and d) Miscellaneous assets.
Of the above four, land is a significant tangible asset and its monetization would be the most feasible option to generate revenue. The 13th Finance Commission had also laid down the importance of proper use of land held by states, the Centre and CPSEs/PSUs. Nevertheless, now that the government has introduced a policy framework for its monetization, we have a long way to go in doing it. Land is scattered all over India and there is no official record of how much is available that is not being used.
An important step towards this is to map vacant plots of land across the country and place a list of the same in the public domain. The Niti Aayog has asked ministries to identify and share details of their assets to be included in the National Monetisation Pipeline in this pursuit. But many government institutions can hardly tell what surplus land they have. Consider three initiatives that the World Bank’s policy working paper 6665 of 2013 had suggested for land management.
First, central land-holding institutions should identify land required for their present and future service provisions. The remaining land should be treated as surplus. These institutions must be asked to prepare a plan for the monetization of surplus land. Second, the government should institute a land audit to monitor institutions’ identification of land needed and what is surplus. Australia’s land audit may be taken as a model for implementation. Third, institutions should be required to estimate the proceeds of land monetization and include the sums as a revenue source that would reduce the need for budget subsidies.
We have to develop an appropriate model for our land monetization process to take off. Governments across the world are developing models to maximize the value derived from public assets. The models of Australia, Canada, China, France and the US are in the limelight. We should also take lessons from them and develop a model of our own. In this, Canada’s model could be useful. The government of Canada opted for ‘asset recycling’ to dispose of legacy assets and thereby generate revenues to invest in new assets or refurbish existing infrastructure.
The Canadian model for asset management makes use of a special purpose vehicle (SPV)—Canadian land Company, and focuses on independent and professional governance. The process starts with an identification of assets, followed by the purchase of surplus properties, including government land, by the SPV at market prices. It involves management of purchased assets and ends with their sale to private buyers.
The Canadian model has delivered good results. Effective asset management has helped its government improve its capital planning process. It now has a well-targeted capital investment plan; the country is setting budgets for 5-20 years. Its provincial governments have also taken varying approaches to encourage asset management at the local level. A few provinces are making it mandatory for municipalities to have an effective asset-management plan for them to access provincial infrastructure funding.
India’s government also plans to launch an SPV to execute the monetization process. It is exploring a model that involves real estate investment trusts (REITs) and infrastructure investment trusts (InvITS). Under REITs and InvITS, the selected assets will be transferred to a trust, providing an investment opportunity for institutional investors. The National Highways Authority of India and Power Grid Corp of India Ltd have been asked to sponsor one InvIT to attract institutional investors. By some estimates, the government can generate ₹2.5 trillion through asset monetization in the first phase. (The Niti Aayog has been tasked to prepare a National Monetisation Pipeline for 2020-21 to 2023-24)
An effective asset-management approach draws information from across the country and connects the dots for value maximization. We need to bring together people and skills to solve our infrastructure problems. The government should do its best to attract the private sector’s interest in what property it has to offer. While we need to design our own model for land monetization, we should learn from the World Bank’s suggestions and the Canadian model to ensure the success of this ambitious programme.
Vinay K. Srivastava teaches at I.T.S, Ghaziabad. His Twitter handle is @meetdrvinay
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