National Land Monetisation Corporation : Why needed and its benefits – UPSC GS3

Context: Government approved the creation of the National Land Monetisation Corporation (NLMC) to carry out monetisation of government land holdings.
What is Monetisation of Assets?
Asset monetisation is the process of creating new sources of revenue for the government and its entities by unlocking the economic value of unutilised or underutilized public assets.
  • How does it work?
    • When the government monetises its assets, it essentially means that it is transferring the revenue rights of the asset to a private player for a specified period of time.
    • In such a transaction, the government gets in return an upfront payment from the private entity, a regular share of the revenue generated from the asset, a promise of steady investment into the asset, and the title rights to the monetised asset.
  • Ways to monetise government assets:
    • Real Estate Investment Trust (REIT): It is a company that owns and operates a land asset and sometimes, funds income-producing real estate. This method can be used in the case of land monetisation of certain spaces like offices.
    • Public Private Partnerships (PPP) model: Assets of the government can also be monetised through the Public Private Partnerships (PPP) model.
  • Reasons for asset monetisation:
    • To create new sources of revenue as the economy needs revenues to fulfil the government’s target of achieving a $5 trillion economy.
    • Monetisation is also done to unlock the potential of unused or underused assets by involving institutional investors or private players.
    • It is also done to generate resources or capital for future asset creation, such as using the money generated from monetisation to create new infrastructure projects.
National Land Monetisation Corporation:
National Land Monetisation Corporation is the Special Purpose Vehicle (SPV) that was announced in the Union Budget 2021-22.
  • Aims and Objectives:
    • To carry out monetisation of government and surplus landholdings of public sector undertakings (PSU).
    • To carry out the monetisation of government and public sector assets in the form of surplus, unused or underused land assets.
    • To facilitate the monetisation of assets belonging to PSUs that have ceased operations or are in line for strategic disinvestment.
  • Functions:
    • It will be a firm fully owned by the government and will act as an advisory body.
    • It will fall under the administrative jurisdiction of the Ministry of Finance.
    • It will be set up with an initial authorized share capital of ₹5,000 crore and a paid-up capital of ₹150 crore.
    • It will support other government entities and CPSEs in identifying their surplus non-core assets and monetising them in an efficient manner.
  • Benefits of National Land Monetisation Corporation
    • The setting of the NLMC will speed up the closure process of the CPSEs and smoothen the strategic disinvestment process.
    • It will also enable productive utilization of these under-utilized assets by setting in motion private sector investments and new economic activities such as industrialisation.
    • It will boost the local economy by generating employment and generating financial resources for potential economic and social infrastructure.
  • Working of NLMC:
    • The firm will hire professionals from the private sector with a merit based approach.
    • This is because asset monetisation of real estate requires expertise in the valuation of property, market research, investment banking, land management, legal diligence, etc.
    • The NLMC will undertake monetisation as an agency function and is expected to act as a directory of best practices in land monetisation.
  • Challenges for NLMC:
    • The performance and productivity of the NLMC will depend on the government’s performance on its disinvestment targets which seems to be difficult to achieve in uncertain conditions.
    • Besides, there are also challenges in identifying profitable revenue streams for the monetised land assets, ensuring adequate investment by the private players and setting up a dispute-resolution mechanism are also important tasks.
    • Another potential challenge would be the use of Public Private Partnerships (PPPs) as a monetisation model.
    • The presence of just a few serious bidders would also give rise to the possibility of a less competitive space.
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