Govt's land bank to trim deficit?

Thu, 4 Oct Pre-Open

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India has a land mass of 3.3 million square kilometers. This makes it the seventh largest country in the world. However a large portion of these precious land banks are under government control. Now facing mounting fiscal deficit pressures, the government has an ambitious plan to address the same with land proceeds. It plans to sell surplus government land in order to generate cash to ease financial pressures, as suggested by the Vijay Kelkar committee on fiscal consolidation.

Proceeds from the sale or lease of surplus land, seen as a non-performing asset, would only be used to repay loans or create capital assets. These assets will be able to generate recurring revenue over the long run. This objective is a counter to criticism that the government may be selling off its family jewels in order to fulfill populist polices like subsidies. The government also seems to prefer the outright sale of land versus leasing or licensing the property. It will be able to make more money upfront in the sale process since lease rental is usually well below market value. Plus regaining possession of the property after lease expiry is a tough task. Any sale of land with market value of more than Rs 500 m would require cabinet approval. Those below would have to be disposed as per a predefined e-auction procedure.

Government assets including disinvestment of its public sector undertakings and now land banks need to be monetized. This will help in reducing the fiscal deficit in the country and also reduce borrowing costs. A failure to plug this gap now could lead to a worse problem than the 1991 balance of payments crisis. This is especially in an environment of slowing growth overseas and uncertain financial markets.

In terms of monetizing land banks, shipping, defense, post offices, airport authority and railways are sitting on the largest land banks. According to estimates, railways can sell off around 10,000 acres in urban centres, generating Rs 500 bn. Similarly, port trusts can monetize around one-fifth of the 250,000 acres they own. Besides generating revenue for the Indian government, this process will also help create a database of all the surplus land available with public sector entities. While identifying such resources and monetizing them to better India's fiscal position is a noble task, we hope that the whole process is transparent. Corruption in the system could badly taint this move towards fiscal consolidation.