The joy of former Tamil Nadu chief minister J. Jayalalithaa on stalling a Tata group project in the state is myopic, to say the least. This entanglement of large projects with competitive politics could very well extinguish the animal spirits of large investors. The votes, too, will dry up in the long run, in the absence of jobs and growth. But our politicians could not care less.
The total investment in two projects by the Tatas in Singur in West Bengal and Tuticorin in Tamil Nadu is pegged at Rs3,500 crore. This represents direct investment. Benefits to the two states in the form of jobs for local people and economic growth over time will be substantial. The sore point, of course, is the displacement of small landholders.
To Indian politicians, a project is good if it yields immediate returns; otherwise, it is “anti-people”. And here the returns we are talking about are to the politicians and not the people or investors. This cynical worldview tells us a lot about contemporary political culture.
In an earlier age, politicians in opposition would patiently wait for their time and oppose the government of the day when its term was nearing an end. Debates about performance would dominate such proceedings. Today, in the age of instant images across the country, they do not have such patience. Projects such as those in Singur and Tuticorin are opportunities for grandstanding.
This makes it difficult to disentangle the technical problem of rehabilitation from the politics that accompanies it. Ruling parties have seldom paid attention to politically managing the process or building a consensus with the Opposition when dealing with such projects.
To squelch political opportunism, it would be a good idea to have a rehabilitation policy in place when land is being acquired, especially when the transaction is not at market rates. Otherwise, by the time project details such as the memorandum of understanding and the amount of land to be acquired are decided, politics has enveloped economics. At a late hour, any announcement of compensation or any change in project parameters is taken as a sign of capitulation. The entire process collapses as a result.
At the same time, one can expect better from the private sector. Companies do not have the coercive apparatus of the government to quell any opposition. Government officials dealing with rehabilitation are usually insensitive and do not have any authority to meet local needs by negotiating with project-affected people. Unlike a government that is accountable to voters only after five years, a company that acquires land and other resources has to be sensitive to local needs.
Usually, there are inbuilt synergies in large projects that can be used to build goodwill: Requirement for local labour, vendors and material accompany such projects. Experience shows that where a company can cheaply avail of these resources locally, it does so in the first instance. Problems begin when the state demands iron-clad guarantees, one that no profit-seeking entity can give.
Groups opposed to this new spirit of industrialization argue that a case exists for the direct acquisition of land by the company concerned. In a well-functioning land market, this should be the case. This newspaper believes that, as a matter of principle, the sale of private property should be free of interference by the state. But we recognize that fragmented land holdings and poor documentation lead to very high transaction costs in land acquisition. That could potentially spoil the economics of a project.
Unfortunately, there are no easy solutions to this conflict between principle and pragmatism. We need proper institutional mechanisms that can help companies acquire land without trampling over the property rights of farmers.
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