The problem with government as landlord

The opportunity costs of vast tracts of unproductive state-owned land are significant

Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

The underperformance of India’s public sector undertakings (PSUs) and the political inability to take decisive action on this front has been a constant theme in the post-liberalization era. The Narendra Modi government’s move to identify and sell PSUs that are losing propositions—picking up where the Atal Bihari Vajpayee administration left off—is thus welcome news. One of the trickier aspects of this endeavour will be disposing of the land owned by these PSUs.

According to some estimates, around one million acres of surplus land in around 300 central PSUs is lying vacant across the country. This represents a huge opportunity cost. Unlocking this surplus land could, for instance, solve many of the problems in cities that are land-starved—allowing for civic infrastructure such as hospitals, schools and roads. In fact, in 2012, a government panel headed by Vijay Kelkar recommended monetizing surplus government land from port trusts, railways and PSUs as the ideal solution to India’s urban problems—besides the obvious benefits of unlocking huge revenue and betterment of the fiscal consolidation situation. The S.K. Roongta committee constituted by the Planning Commission also proposed this. The Public Sector Land Development Authority, which was to be set up for the purpose, however, never came to be.

Disposing of surplus government land is not easy. Lack of adequate land records and the absence of a single comprehensive land database, opposition from trade unions, illegal encroachment and lack of coordination between various ministries are all major issues. PSUs themselves are often in the dark as to the extent and nature of their holdings. Many of the steps involved in the monetization of PSU land—such as identification of surplus land and approval from the relevant ministries—are lengthy and cumbersome.

The sale process itself can be challenging as well, as we have seen with HMT and Cement Corp. The VSNL case is a good example here. The government sold 25% equity to the Tata group in 2002—but it took until August this year for the legislative changes that will allow the demerger and productive use of the surplus 773 acres of VSNL land. Fortunately, the Modi government’s strategic sales push is putting in place mechanisms that will bring clarity to the asset-stripping issue.

There are lessons to be learnt from the ministry of defence and the railways ministry here. The former’s success in digitizing, indexing and computerizing land records, and the exception made to the rule of non-use of defence land for other purposes, has facilitated the easier transfer of defence land in recent years.

The railways have an exclusive Rail Land Development Authority for developing unused railway land. Whether the railways or any ministry should diversify into activities outside their core area of operation is a valid question here. It is, however, better than allowing land to lie idle, at least until some alternative solution emerges.

Leasing is another viable option in many of these cases—but it too is hamstrung by a lack of policy clarity. Unless the complications associated with leasing laws in states are resolved, it cannot be actively pursued as a strategy.

A few months ago, the government floated the idea of formulating a special purpose vehicle or a land bank to consolidate the landholdings of idle PSUs and use them for other public purposes. The government views this as a way to partially solve the problem until the amendments to the Land Acquisition, Rehabilitation and Resettlement Act, 2013 come through.

This is similar to the Chinese model where a single agency will handle all the landholdings of PSUs. The government think tank NITI Aayog has proposed the collection of data for the creation of this land bank. The government’s policy think tank, which has been given the task of exploring the options of land disposal, is currently examining the viability of this route. Last month, it identified 26 PSUs for outright closure and said that in the case of disposal of freehold land (not leased), central PSUs would have to approach the respective state government for using it for public purpose before proceeding further.

To solve the problem of PSU land and land in general, it is necessary to first have an accurate picture of the problem. Records are essential for that—documented property would eliminate ownership doubts and facilitate easy transfer. According to government data, despite progress in the digitization process, only nine states and union territories have managed to integrate land records and registration. This means that in most states, the two tasks are handled by separate departments, often leading to incongruity in data sets. Karnataka’s record in digitization and Rajasthan’s efforts towards registration of land titles are good points of reference here.

It is, therefore, crucial that the states and ministries are on board if the land records modernization programme, the monetizing of PSU land and optimal utilization of available land are to be a reality.

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