Strategic Slowdown in India's Asset Monetization Program

The Central Government realizes that the time is not right for fast-tracking disinvestment especially as PSUs have turned profitable and are giving high dividends to the Centre. PSUs are having high valuations amidst the stock market boom. The June 2024 quarter net profit of PSUs grew by 16 percent to Rs 39974/- crore. Public sector banks (PSBs) cumulative profit topped Rs 1.4 lakh crore in FY'24. The 2024 General Elections and the subsequent coalition compulsions have been other reasons for the Centre to go slow on its privatization programme.

As the Indian economy continues to gain strength, the government has taken to course correction, putting brakes on its policy to divest PSUs and is instead focusing on strengthening state-owned companies to maximise overall value of public sector enterprises (PSEs) in strategic sectors like banking, insurance and financial services, transport and telecommunications, power, petroleum, coal, minerals, defence, space, and atomic energy.

As the state-run companies are outperforming the private sector in most of the financial parameters over the last 5 financial years, the government thinks it is a favourable time to consolidate and maximise the gains of the PSUs. The statistics provide tell-tale evidence. The 56 listed CPSEs registered a 4 percent increase in their profits which topped 5 trillion rupees. CPSEs, including Oil & Natural Gas Limited, LIC, Indian Oil, and Coal India, have emerged quite profitable. Being in good health, CPSEs are paying high dividends to the Central Government. The 12 PSU banks have shown 4.5 times profits in the last 3 years - from Rs 311 crore in FY 21 to Rs 1.4 trillion in FY 24 - with SBI emerging as the most profitable.

Furthermore, the combined market capitalization (M-Cap) of 80 listed CPSES rose 2.56 times to Rs 59.5 trillion in the last 5 years up to July 12 2024. On the other hand, private sector peers saw a combined M-Cap growth of 159 percent to Rs 219.35 trillion.

The government had taken to disinvestment as it needed huge funding for physical and social infrastructure, including education and health, without upsetting fiscal consolidation achieved by it. Asset monetization through disinvestment is estimated to account for 5.4 percent of the total infrastructure investment envisaged under the Rs 111 trillion National Infrastructure Pipeline for FY 21-25. The disinvestment proceeds will also help in retiring a part of government's debt that has reached unsustainable levels. According to Amitabh Kant, former CEO, Niti Aayog, the idea of asset monetization was to allow the private sector to bring in equity and raise more debt for creating more assets, thereby starting a virtual cycle of growth, and in turn creating jobs.

According to Finance Ministry statistics, over the last 3 years, assets worth Rs 3.6 lakh crore have been monetized till FY24. This included asset monetization worth over Rs 1.54 lakh crore in the coal sector, followed by roads (Rs 81,556 crore), power (Rs 33,512 crore), mines (Rs 32,651 crore), petroleum & natural gas (Rs 28,587 crore), railways (Rs 20,417 crore), shipping (Rs 12979 crore), urban sector (Rs 9,800 crore), warehousing (Rs 8,033 crore), civil aviation (Rs 2,663 crore), and telecom (Rs 1,452 crore).

In FY 24, the Central Government could manage only Rs 30,000 crore from disinvestment, and for FY 25 also, it has kept a low target of Rs 50,000 crore. The Centre is looking to raise Rs 10,000 crore disinvestment proceeds through half a dozen port projects in FY 25, aiming to increase the share of PPP in ports. Though the Shipping Ministry has surpassed its Rs 12,000 crore monetization target, yet industry experts believe that, going forward, monetization of ports will be a challenging task as most of the unexploited and revenue generating terminals have already been bid out.

Meanwhile, NHAI has set up an asset monetization cell, headed by NHAI 's Member Finance to steer its future monetization plans, including monetization of completed and operational highways assets, by engaging with all stakeholders, including investors, government and financial institutions. NHAI has identified 12 operational highway stretches with a combined length of 850 km for transfer to the National Highway Infrastructure Trust (NHIT) in FY25 as part of its asset monetization programme. It hopes to raise a revenue of Rs 20,000 crore against Rs 16,000 crore of revenue mobilised in 2023-24 through NHIT route by leasing out 889 km of roads. It is worthwhile to mention that in 2023-24, NHAI raised Rs 40,314 crore from monetization of its projects.

As far as monetization of airports is concerned, the government is reassessing the privatization of airports in the new third phase, though it will continue to adopt the PPP approach, which is helpful to plug funding gaps and bring in private sector efficiency and expertise, thereby putting airport modernisation programme on fast track. Currently, 14 out of more than 135 airports are operational under the PPP model.

As per National Monetization Pipeline (NMP), developed by Niti Aayog, 25 airports of Airports Authority of India (AAI) are earmarked for leasing over 2022-2025. These include Calicut, Coimbatore, Nagpur, Patna, Madurai, Surat, Ranchi, Jodhpur, Chennai, Vijaywada, Vadodara, Bhopal, Tirupati, Hubli, Imphal, Agartala, Udaipur, Dehradun, and Rajamundry. It may be noted that in the first phase, privatisation of Delhi and Mumbai airports had taken place, followed by privatisation of 6 airports viz. Ahmedabad, Jaipur, Thiruvanthapuram, Mangaluru, Lucknow, and Guwahati in 2019.

In the telecom sector, instead of disinvestment, the focus is on revamping the state-owned telecom operator Bharat Sanchar Nigam Limited (BSNL). For reviving BSNL, the Centre has provided Rs 3.2 trillion in 3 packages. Boston Consulting Group has been hired by the government to prepare BSNL's revival plan by advising it to improve its customer experience, sales and marketing strategies. Meanwhile, BSNL is working on a plan to roll out 5G services in early 2025 and is targeting 20 percent mobile subscriber share by 2024-end by ramping up 4G. It is also looking to revamp its business in the enterprise segment through cloud solutions, 5G captive networks, and Internet of Things (IoT). The state-run telecom operator is also taking the land monetisation route to revive its fortunes.

Bright Outlook for Land Monetization

The monetization of several lakh acres of land pool with various central government agencies holds significance as it will bolster the Rs 111 trillion National Infrastructure Pipeline, in addition to the Gati Shakti connectivity projects, besides housing projects. To tap this potential, NLMC (National Land Monetization Corporation) has been set up with a mandate to monetize land and other non-core assets of CPSEs.

The Indian Railways has a massive land monetization opportunity as it has 10 lakh acres of vacant idle land. The Railways Ministry is seeking to generate substantial revenue by leasing out land parcels, station land for commercial purposes, besides monetizing railway colonies' land. The Railways has identified 341.93 hectares of prime land across the country to be given out to private developers on a 90 percent lease, hoping to generate Rs 5000 crore. According to RLDA (Railway Land Development Authority), the Railways has nearly 43,000 hectares of vacant land.

The Ministry is lagging behind in its asset monetization target, generating only Rs 21,000 crore against the target of Rs 68,000 crore set by Niti Ayog. In 2024-25, the original NMP had fixed a monetization target of Rs 32,557 crore. To meet the targets, besides monetizing vacant and idle land, the Ministry is banking on monetizing railway stations with redevelopment projects in PPP mode, for which a lot of interest has been shown by big infrastructure and real estate companies like Adani Railways, GMR , Godrej Properties, and Oberoi Realty.

Sick CPSEs like MTNL, HMT, BEML, along with BSNL, have a monetization potential of 5,000 acres of land. The Defense Ministry has 32,000 acres of land in the form of military farms, abandoned airfields etc for monetization through NLMC. Then there is 20,000 acres of salt pan land (a naturally forming expanse covered with salt and other minerals) spread over Maharashtra, Gujarat, and Karnataka for monetization.

Life Insurance Corporation (LIC) is working on a plan to raise USD 6.7 billion from the sale of its plots and commercial buildings in Mumbai, New Delhi, and Kolkata. The total value of LIC assets has been put at Rs 51.21 trillion, and to leverage this potential, LIC may well consider forming a separate entity to monetize its real estate assets, though there are likely hurdles as many LIC properties are under litigation.

Airports Authority of India (AAI) has 55,000-60,000 acres of land across 150+ locations, including airports and air strips. It is seeking to monetize 50 airports through redevelopment.

BSNL is out to monetize its land parcels including telephone exchanges, administration buildings, staff quarter compounds, besides vacant land. It has already put on the block 27 land parcels across 11 states and union territories. It has also drawn a list of 500 land parcels and buildings for sale.

Despite this calibrated approach by the Central government, the asset monetization programme of the government remains on track. The first phase of the National Monetization Pipeline (NMP) unveiled in FY22 had set an ambitious Rs 6 trillion asset recycling target for 4 years till FY 25 through long-term leasing of brownfield assets in roads, mining, power, petroleum, and airport sectors. Notably, in the first 3 years (FY 22-24), 90 percent target has been reportedly achieved. The second phase (FY26-30) target of NMP is set to be raised to Rs 10 trillion over the next 5 years, with highways, mining, power, and petroleum sectors in the forefront.

With a healthy outlook for the Indian economy that is set to become the third largest in the world by 2030, the road ahead for the asset monetization looks smoother, notwithstanding the roadblocks.