Without red tape, plans to let private sector manage surplus land can work

Of all the parts of the disinvestment programme that Finance Minister Nirmala Sitharaman announced in her Budget speech, the sale of land could become the most useful piece of government action in the sector.

It took nearly 70 years for the Government of India to recognise the merits of allowing the private sector to manage surplus government land. Once fully fleshed out, this could be a far larger play for companies other than those that operate in the real estate sector — though the S&P BSE realty index soared 15.29 per cent against the broad market Sensex 50’s 6.3 per cent since Budget day.

But this policy is a much bigger story. It is the reverse of straightforward government acquisition of land, which is how all policies for this factor of production, at both states and Centre, have operated so far, with all its attendant delays in compensation payment and so on. The government here is the seller.

In post-Budget interviews, officials in the Department of Investment and Public Asset Management have referred to the Canadian model, indicating the direction in which they plan to move. Under the Canadian model, all lands that the government does not need, especially in cities, is given to a state-run company, Canada Lands Company. This company sells some of these land parcels, often after repairing environmental damage, or figures out ways to expand their value by setting up all sorts of facilities, such as entertainment zones for the public to social welfare projects for marginalised communities. The private sector is roped in even for unsold land, to either build some facilities or manage some of them.

The public sector has experimented with asset monetisation — such as the National Highways Authority’s bidding out five sets of properties to foreign and domestic companies such as Macquarie and Cube under the Toll-Operate-Transfer model. The Railways has bid out 153 train sets. The response has been mixed. But bidding out land, free of usage restrictions, has been rare because it is politically challenging.

That Prime Minister Narendra Modi has taken the ownership of what he called the “monetisation of public assets and privatisation (which) can be used in public welfare schemes” shows he is willing to spend political capital to make it happen. It may be less politically problematic than the changes he attempted via Ordinance of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act) — LARR Act — of 2013. The Act had steeply raised the price of land a government or a private corporation would need to pay; in 2015, the Modi government tried three times, to move amendments to create channels to bypass the high prices for designated projects, without success.

Instead, as Shubhashis Gangopadhyay and Patricia Clarke Annez at India Development Foundation showed in a 2017 study, the government could do better to simply sell lands it sits on — and this includes vast surplus land held by public sector enterprise. Gangopadhyay and Clarke inventoried public lands held by the Ahmedabad Municipal Corporation, which showed that it held 32 per cent of all developed and developable land in the town area — excluding public facilities such as roads, railway lines, water bodies and discarded unused lands already earmarked for public purposes — from the valuation exercise.

“The value of potentially marketable excess land is still substantial—ranging from a low of Rs 20,000 crore at jantri (circle) rates to Rs 55,000 crore at market rates,” they wrote. Once sold, the money could finance more than three times the spending needed for all urban infrastructure investments over the next 20 years in Ahmedabad. “The data is similar for all cities,” Gangopadhyay said.

But the sale process could be more complex for public sector enterprises. Those that have been set up under Acts of Parliament — such as Air India or LIC — would require legislative amendments first, whereas those such as NTPC or BHEL can monetise their land by a simple board resolution.

VSNL remains a cautionary story of the complications of monetising land assets. In 2002, the government sold the telecom company to the Tata group (which renamed it Tata Communications). The 740.3 acres of surplus land, however, was retained and to be valued separately. Yet, it has taken 18 years to untangle the knot. The land was finally de-merged from Tata Communi­ca­tions, and clubbed under a new company, Hemisphere Properties. But Hemisphere will need a Rs 751-crore government loan to pay for the stamp duty on the transfer of title of this land. Only then can the land be of any use. This is why companies have given the government policy a guarded salute in their meetings with both Modi and the finance ministry.

India had dabbled with the model of farming out land to the private sector when the Delhi Development Authority Act was passed in 1957, just a year after Canada set up its Public Works Lands Company Limited in 1956. This scheme was written by the industrialist G D Birla. 

While the Canadian company remained dormant till the 1980s, when it was revived as Canada Lands Company, the DDA became active quite early. But it strayed far from its goal of adding value to government land developing only housing projects; and it stopped building those in the early years of this century. Today, it sits on a cash pool of over Rs 35,000 crore.  The Canada Lands Company, which became active around the time when the DDA became passive, has built impressive stretches of properties and maintains an arm’s-length distance from the government.

Of course, there are limitations. Land within cities cannot be used to build factories. The Canadian Lands Company model shows this can be overcome by creating plenty of facilities the state often is just not able to dream up but the private sector can — office complexes, museums and recreation complexes.

There are other models like the UK one, but the Canadian one has been most successful. It needs a trust bridge between the government and the private sector to build something on those lines again. Maybe Modi could ask a patriarch of the stature of the late G D Birla to flesh out the details of a new company to manage government land privatisation.