Airport privatisation: Why states want a piece of Centre’s revenue pie

States including Chhattisgarh and Jharkhand are now backing the Tamil Nadu government in its demand for revenue share from privatised airports and equity against land provided by the state for the construction of new airports

Chennai airport
The Centre plans to privatise 25 airports across the nation in a span of five years under the National Monetisation Pipleline. (Representational image)

The tussle between the Centre and states over economic decisions has taken a rather stormy turn, with states including Chhattisgarh and Jharkhand now backing the Tamil Nadu government in its demand for revenue share from privatised airports and equity against land provided by the state for the construction of new airports.

In a recent policy note, the MK Stalin-led DMK government in Tamil Nadu sought to claim a proportionate value or revenue from the Airports Authority of India (AAI) if the Union Ministry of Civil Aviation privatises airports in the state.

Give state its share, demands TN

The Tamil Nadu government argues that it is only just that the state government, which acquires and transfers land to the AAI free of cost and in a way is making an investment into the project, gets a proportionately-shared revenue if the Centre transfers the land to a third party – in this case a private party.

The Centre plans to privatise 25 airports across the nation in a span of five years under the National Monetisation Pipleline (NMP). These are the airports in Bhubaneswar, Varanasi, Amritsar, Trichy, Indore, Raipur, Calicut, Coimbatore, Nagpur, Patna, Madurai, Surat, Ranchi, Jodhpur, Chennai, Vijayawada, Vadodara, Bhopal, Tirupati, Hubli, Imphal, Agartala, Udaipur, Dehradun and Rajahmundry.  The airports have been shortlised for asset monetisation based on their ability have have attracted an annual traffic above 0.4 million passengers in 2019 and 2020.

Also read: TN demands share of revenue from AAI’s airports privatisation drive

The Tamil Nadu government’s policy note comes in the wake of the AAI working towards the privatisation of the first batch of 13 airports including Trichy airport in the state, as part of NMP. A private investment of ₹3,660 crore has been earmarked for the first leg of the exercise which is stipulated to conclude by FY24.

The Tamil Nadu government’s policy note also comes at a time when the AAI is trying to acquire land for new airports and extension of existing ones. The AAI has reportedly requested for 64.57 acre of patta land and alienation of 11.58 acres of poramboke land for Chennai Airport.

Tamil Nadu’s Finance Minister Palanivel Thiaga Rajan (PTR) had also raised the issue in the Union Budget last year.

“In the past, the government of Tamil Nadu has given land for free or at concessional rates for many central public sector undertakings and projects of the Union government. During the privatisation of such organisations, the state government should be justly compensated for the land either through payment of land cost at current market value or through an equivalent equity stake in teh new entity. Further, to incentivise states to show more interest in projects of the Union government, I request that a policy may be formulated in this regard and announced in the Budget,” PTR had said.

Chhattisgarh, Jharkhand back TN

Tamil Nadu’s demand has now found resonance among Chhattisgarh and Jharkhand with the states asking for a share of the revenue pie.

Chhattisgarh Minister of Panchayat and Rural Development, Health and Family Welfare and Commercial Tax, TS Singhdeo has said that considering that land is a state resource, when the state and the central governments collaborate for a revenue-generating project, the state government is a shareholder who has invested capital (land) in the project.

He said it is fine for the government to reap revenue when a project is handled by the public sector, but once it gives it to a third entity, the asset including its infrastructure and land is considered sold.

“So, the state government should be given the value of the land,” he said.

“When you are in a joint venture then the investment which has been made, the government of India would put in the capital in terms of infrastructure, the state government puts up its capital in terms of its land. So, definitely in every such venture the value of the land should be given to the state government if and when it is sold to a third party which is a private player,” he said.

Jharkhand’s Finance Minister Rameshwar Oraon too has endorsed the idea and agrees that the “land belongs the state.”

While the Centre is pushing privatisations to boost its coffers, states want a share of the pie for the same reason. Their finances are struggling, GST compensation is not coming in regularly, so revenue from airport land would be welcome.

So far, only non-BJP rules states have come up with the demand.

Centre reluctant

The Centre, however, is opposed to the revenue-sharing idea pitched by Tamil Nadu, as it believes that states get their fair share of revenue from subsidiary branches of a project.

“One is the direct economic activity that benefits the entire state. Even within the region where the airport is being developed, there are catchment areas that reap benefits, which the state gets. The land value gets enhanced and it translates into better collections of stamp duties etc,” an official who works closely on the Centre’s privatisation plans told Indian Express.

 Also read: Kerala CM expresses displeasure over Centre’s privatisation spree

“For private companies, if such demands result in an additional outgo being created in addition to what they share with the AAI, then it does affect the attractiveness of the project,” the official said.

Ban on state government’s bid for CPSEs

If not asking for a share of the revenue, the Kerala government has been urging the Centre to allow it to manage airports that are have been proposed for disinvestment.

Earlier this month, Kerala Chief Minister Pinarayi Vijayan slammed the Centre for its reluctance to entrust his government with the management of the Thiruvananthapuram International Airport and the state unit of HLL Lifecare Limited.

Stressing that the Kerala government was strictly against privatisation of PSUs and has the ability to rejuvenate and strengthen such institutions, Vijayan reminded the Centre that the land for Central Public Sector Enterprises (CPSE) was acquired by the state government and the latter should be handed over these properties if they are shortlisted for privatisation.

While governments like Kerala are vying to bid for public sector units, the Centre’s recent diktat banning state governments from bidding for central government companies up for privatisation, has acted as a roadblock.

Announcing the decision recently, the Union Finance Ministry justified it by saying that transferring management control from the central government to any other government organisation or state government would defeat the very purpose of the new PSE policy.