The lay of the land: Financial Express 15th September 2011

Conventional economic theory talks of four factors of production—land, labour, capital and enterprise—that are required for growth. To this has been added technology, while the more fertile minds have appended others, like human capital. However, theories have been floated for all factors except land, which was exogenously given. And, ironically, land has been one of the most controversial issues when discussing economic progress in the country. The land laws date to 1894 and evidently are anachronistic and controversial as it transcends into a social issue that is quite characteristically captured by realpolitik.

The problem with land is that there are an equal number of interested and antagonistic parties. The Sardar Sarovar Dam is an evergreen story, while the escapades of Tata Motors or Sterlite are more recent. There are companies that want to buy land and use the same for mineral exploration or setting up their units. The owners are either landlords or poor people with marginal but contiguous units of land who would sell, though they do not quite know what it best for them. Then there are the ubiquitous environmentalists who will always find a reason to block such deals. Add to this the group of activists who are anti-industry about everything and the battlefield gets dense.

At another level, there are various levels of government that come in the way of land ownership, with the laws being nebulous on the extent to which the Centre has the power to overrule the state and local bodies. Given that the

governments are from different parties across these governing units, there will be conflict.

The current Land Acquisition Bill, if enacted, will provide guidelines for future land deals. To touch on the major contours, this is how the new proposed rules look. The Bill talks of resettlement and rehabilitation of the affected people. There are rules governing the acquiescence of 80% of the owners, while multi-cropped areas are now on the shopping displays. Separate rules apply for rural and urban land and state governments can have their own rules. However, government purchase is out of the ambit and can be done for public purpose. Compensation has been fixed at four times or twice the market value in rural and urban areas, respectively. The creation of a land bank would address the issue of land being purchased and not used for 10 years.

The country is in the midst of taking off on a high growth trajectory and the current use or rather restricted access to land has led to overcrowding and other accompanying disadvantages that go with rapid urbanisation and industrialisation. While factors such as capital, enterprise, technology and capital are available either within the nation or

outside, the same does not hold for land. Indian companies have looked towards the outside world to buy land with the minerals or setting up business as the current antiquated laws are inhibitive. Quite evidently, we need to have land laws in place that offer enterprise the factor of production which is intrinsic for growth. The current Bill is therefore welcome.

It is true that greater use of land does lead to environment degradation and displaces the owners who could be illiterate and at a disadvantage. But, this is a tradeoff to accept because any form of development will have to be at the expense of the environment as one cannot generate power, or bring about consumerism without investment in factories or offices that have to be located on land. To counter the environment issues, the concerned governments should lay down the rules of the game in parallel so as to mitigate these effects.

Could there be problems along the way? Definitely yes, as the current rules lay down the ground rules and will have to address the issue of valuation, which is important in any market. Also getting 80% of the people to agree to sell will be a challenge and, to begin with, there would be a lot of suasion, which may not always be ethical, especially where the projects are large. The government would have to further look at this issue as land prices are always opaque as the official and market rates vary considerably even in metropolitan cities.

The current content of the laws can be debated as being pro-industry or anti-poor, but a start has to be made. The current guidelines make it easier to acquire land though the cost of this factor is bound to increase, which can be accepted as being the price that is discovered in the market. In fact, having the ground rules set helps in creating a market for land, which can, at some later point of time, also lead to a vibrant secondary market with the proliferation of financial derivative products. Currently, it is expected that the cost of production would increase with the fixed cost component moving up, which will get reflected in the price of the product—be it housing or factory output. But then, if it is the true reflection of the price of this vital commodity, i.e. land, so be it.