New Delhi: Land has emerged as the biggest constraint in developing infrastructure and industrial projects. Infrastructure Development Finance Co. Ltd’s (IDFC) India Infrastructure Report 2009, titled Land—A Critical Resource for Infrastructure, focused on this subject.
Mint’s deputy managing editor Tamal Bandyopadhyay, IDFC chief executive officer and managing director, Rajiv Lall and six of the several experts who contributed to IDFC’s latest report, India Infrastructure 2009, discuss the issue. The experts are Sebastian Morris, Ajay Pandey, Ashok Singha, Rumjhum Chatterjee, Runa Sarkar and Bimal Patel. In the first part, which appeared on Wednesday, Mint presented excerpts from the discussion on the findings of the report and why there is opposition to some industrial projects and not others. The second part looks at the legislative aspect of land acquisition. Edited excerpts:
Policy dilemma: (above) A farmer at work against a backdrop of industrial construction at Baddi in Himachal Pradesh (Harikrishna Katragadda / Mint); and a signboard for the upcoming SEZ in Noida (Ramesh Pathania / Mint). Experts say vested interest interventions have led to legislation that allows the creation of SEZs that have nothing to do with the original concept.
Bandyopadhyay: There is a school of thought that special economic zones (SEZs) are actually nothing but a land grabbing exercise. What is happening on that front?
Also Read The politics of land acquisition
Lall: An SEZ really needs to be a large area of contiguous land; it can’t be just very small pockets of land, enough for three or four buildings. It’s almost like creating an industrial corridor, that’s really the potential value of an SEZ. What has happened in our country is that starting with that concept, by the time you’ve got to the legislation, you’ve completely distorted the notion of SEZ.
So along the way, because of interventions of a lot of vested interests, what you have created is legislation that allows for, technically, the creation of SEZs that have nothing to do with the original concept. Hence, the allegations or the suggestions that “Oh, this is just a scheme either to avoid taxes”—because one of the fiscal benefits associated with getting that status is a whole bunch of tax exemptions—or that it is a land grab in which you effectively change the land use and hence enhance the land value.
Bandyopadhyay: Which allegation is closer to the truth?
Lall: I think the allegation that the legislation has been completely distorted to undermine the original noble purpose of the initiative is the correct interpretation. So I don’t think I am a particular fan of the existing legislation.
Patel: Both these things are at work in dilution of the noble purpose, as you said.
Morris: There is great difficulty in acquiring land by the state and making it available for SEZs. The other thing is that the tax distortions in India are actually very significant. The Chinese needed the SEZs to have capitalism out there in pockets, because when they started, it was very difficult for Deng (Xiaoping) and his gang to convince (others) that this was not going to corrupt the economy.
We need the SEZs in order to at least provide an environment where there is near effective zero VAT (value-added tax)—it means they don’t pay tax.
All over the world all exports are tax-free except in India. And there are other implicit taxes like high energy prices and so on. And so it stands to reason that these guys get the benefits of SEZs but you know the land side has become a fudge; and the agglomeration is completely denied because there are no large SEZs except in Gujarat, where it is easy to acquire land.
Lall: Gujarat has been endowed with a lot of non-agricultural land.
Morris: What I am saying is that West Bengal needs to solve the land acquisition problem even if India doesn’t solve it; Gujarat can do it and will benefit because it has ample land. But Bengal thinks that if the land acquisition Act, and land acquisition and land aggregation processes are not in place, they will lose, because they stand at a stage of development where agriculture cannot sustain (the populace) any more. West Bengal chief minister Buddhadeb Bhattacharjee is right that they have to go on to the industrialization phase; you cannot be driving all the Bengalis to Kutch.
Bandyopadhyay: There is a school of thought that says the entire business of land acquisition should be passed on to the private sector. It’s the companies that should acquire land, not the government on part of the companies. In fact, in a recent Mint debate, West Bengal finance minister Asim Dasgupta said as much. One way of looking at is of the government abdicating its entire responsibility and the other way of looking at is the progressive approach. Rajiv, why don’t you tell us, what’s the right way of handling the situation? Should the private sector do the job?
Lall: Obviously the private sector should do the job where it is appropriate. I don’t agree with the view that the government can completely abdicate its responsibility. I think if you quote minister Dasgupta from West Bengal, he is drawing the wrong lesson because he cannot completely abdicate government’s responsibility. What he has to accept responsibility for is to fix the entire administrative infrastructure and mechanism that makes it easier for the private sector than to go and aggregate land more easily on its own.
Chatterjee: As of now it cannot, the private sector cannot, it will not be able to do that.
Sarkar: See, land has some very specific qualities, it’s a very specific asset, which means that as the private sector goes ahead and starts acquiring land, it is always possible for some owners to hold out. Once you come to the hold out problem, the government has to step in, if you want development. Because of these very specific characteristics of land, that’s why we said that land markets don’t necessarily function. So there is a role, but the government cannot wash its hands of it completely. Having said that, however, yes, the private sector should be trying to do things without the government. The reason it doesn’t is because we have, if you want a clean title to land, there’s no way of getting it unless the government acquires it for you.
The third part of this discussion will look at the compensation policies.