Asset Management and Revenue Generation

What is the issue?

• New approaches of asset management have emerged in the recent times, to protect the public interest while maximizing revenue generation.
• In this context, here is an overview on the various models and the priorities and challenges in this regard for India.

What is the scenario in India?

• India has adopted a new asset-management approach.
• It is moving towards the monetization of unutilized and underutilized assets of central public sector enterprises (CPSEs)/public sector undertakings (PSUs).
  • These are apart from other government assets and immovable ‘enemy property.’
• This comes as an effort to manage public resources better.
• The government has identified this as a potential source of revenue to finance its ambitious infrastructure programme.
• It is exploring direct sales, leasing and other options.

How does asset monetization help?

• 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.
• Asset monetization thus generates new sources of revenue by unlocking the economic value of poorly used assets.

How does it work?

• For the above purpose, the government has slotted all its assets into four groups:

1. Land and buildings
2. Brown-field operational assets like pipelines, roads, mobile towers, etc.
3. Financial assets such as equity shares, debt securities, hybrid/structured finance assets units
4. Miscellaneous assets

• Of the above four, land is a significant tangible asset.
• 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.

What are the challenges in this regard?

• 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.

What does the World Bank suggest?

• The World Bank’s policy working paper 6665 of 2013 had suggested three initiatives 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.
• They should include the sums as a revenue source, that would reduce the need for budget subsidies.

What is the priority now?

• 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.
• Taking lessons from them, India should develop its own appropriate model for the land monetization process to take off.
• In this, particularly, Canada’s model offer key inputs.

What is Canada’s model for asset management?

• The government of Canada opted for ‘asset recycling’ to dispose of legacy assets and thereby generate revenues.
• This will go into investing in new assets or refurbishing existing infrastructure.
• The Canadian model for asset management makes use of a special purpose vehicle (SPV) - Canadian land Company.
• It focuses on independent and professional governance.
• The process starts with identification of assets.
• This is then 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.
• 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.

What are the initiatives in India?

• 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.
• 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.

What is the way forward?

• An effective asset-management approach draws information from across the country and connects the dots for value maximization.
• India needs to bring together people and skills to solve the infrastructure problems.
• The government should also do its best to attract the private sector’s interest in what property it has to offer.

Source: Livemint