The government’s Budget is generally formulated as a cash-in cash-out budget, more or less comparable to a housewife’s grocery account. But the government uses its Budget to build up public assets and a large part of budgetary expenditures are financed by borrowing. Therefore, one can look at the Budget as an instrument for public wealth management.
There is no single data source that allows us to assess the government’s net wealth. One has to piece together an estimate from fragmentary data and simplifying assumptions about values. In what follows, most figures relate to end 2011-12.
The easiest is the value of the assets in public enterprises. The main ones are now listed and there is a price quoted for their shares. On the basis of market capitalisation, the value of government holdings in central public sector enterprises is about Rs 15 lakh crore and in public sector banks about Rs 4 lakh crore. The central Budget shows a dividend receipt from these of about Rs 23,000 crore, a dividend yield of a little over one per cent. The profits of central public sector enterprises are of the order of Rs 1 lakh crore, and the finance minister can surely ask them to double the dividend payout.
Divestment is the route through which some of this capital value can be realised. When the government contemplates a complete withdrawal, then an auction-based sale to a private bidder would be the obvious answer. But when the government does not want to lose control, a neater alternative would be to vest the government’s shareholding in an asset management company and create a derivative exchange-traded fund (ETF) on the lines recommended in the recent Kelkar Committee report on fiscal consolidation. The scale of divestment can be based on fiscal needs without getting into political tangles about privatisation. Putting pressure on public sector undertakings to raise the dividends they pay out will improve the attractiveness of such a public sector ETF.
The government also sits on rather large holdings of land and urban property. The Directorate of Estates has some 90,000 residential units, two-thirds of them in Delhi. It also has 130 lakh square feet of office space, again with about two-thirds in Delhi. If you value the metropolitan residential properties at Rs 2 crore per residential unit, the others at Rs 1 crore per unit, and the office space at Rs 30,000 per square foot, then the value of this urban property amounts to about Rs 2 lakh crore.
Since these properties are in use, they cannot be put onto the market. But a rational and economical use can be encouraged by charging all users an economic rent. Even if the house rent allowance of public servants has to be increased, and so also the budgets of government departments that occupy these offices, an economic rental charge may lead to some bureaucrats opting for smaller dwellings, and maybe even some government offices surrendering surplus space.
The big one, most difficult to value, is the vast urban land stock that government departments and public sector undertakings own. A related issue is the value of natural resources; but much of their value is already reflected in the valuations of public enterprises like Coal India and ONGC.
The biggest land holdings are in the defence cantonments that extend to 18 lakh acres, roughly an acre per person in the defence forces. These cantonments were set up, beginning with the first one in Barrackpore in 1755, by a colonial power that needed to spread the presence of the army through the land. They are partly obsolete and almost certainly oversized. But getting the defence forces to part with even a small portion may be quite difficult unless there is some incentive to entice them. Other departments like the Post Office may also have valuable and underutilised urban properties under their control.
Surplus railway land amounts to about 1 lakh acre, and a Railway Land Development Authority was set up in 2007 to start cashing in on the commercial value of this land. However, not much has happened so far, even though five years have gone by. A better use of railway land may be very helpful in removing eyesores and providing valuable commercial space for our cities.
The public enterprises also have large areas of surplus land. An interesting example is provided by the Mumbai Port Trust, which owns 1,800 acres of prime property mostly in South Mumbai. This is as much as 11 per cent of the land area of Mumbai south of Mahim creek. They have accepted now that, with the development of Nhava Sheva, at least half of this is surplus. Much of it is prime land in the commercial heart of the city — like most of Ballard Estate and the land on which the iconic Taj Hotel is located. Judging by the prices that developers have paid recently in Mumbai, the Port Trust’s land surplus is probably worth Rs 1 lakh crore at the sort of prices that are being paid for land in South Mumbai.
How can these mouth-watering returns be realised without running foul of the sort of land scams that we have seen? The key is to have a process that is at arm’s length from the executive, is non-discriminatory and allows bids from all who are interested and have the resources; is transparent and provides redress for grievance; and that maximises the return to the exchequer. Instead of leaving this to individual departments, a public land management authority should be set up for consolidating all surplus public lands, working out bid proposals in line with extant master plans and running an open auction-based process for disposing of the surplus. The departments can be encouraged to surrender surplus land by giving them some proportion of the proceeds for their own budgets.
The total liabilities of the central government amounted to Rs 43.53 lakh crore, of which around Rs 8.33 lakh crore represents loans to states, public sector undertakings and others. The remainder, Rs 35.2 lakh crore, should be reflected in real assets. Unfortunately, even with the contemporary valuations applied above, that may not be the case — because we have incurred debts for public consumption rather than investment. That is all the more reason for an asset-liability perspective on Budget making that aims at getting more value out of public assets.