Maqbool Fida Husain was born in 1915 in Maharashtra’s most famous pilgrim town of Pandharpur. He moved to Mumbai as a penniless aspiring artist in 1937, often roughing it out on pavements, and even painting cinema hoardings. In those early days he must have scribbled, painted, sketched or simply doodled several pieces, and sold them for a pittance just to make a living. All those early paintings are now worth crores of rupees. Is it unfair that he does not get any share of the subsequent huge wealth creation? Others made millions off his drawings, when he himself had to part with his creations at distress rates.
The question may sound rhetorical, and, furthermore, Mr Husain is no longer an impoverished artist. But the question remains valid. To what extent can a seller retain some ownership rights after an asset is sold? On this very issue there was a much celebrated rift between legends Mohammad Rafi and Lata Mangeshkar in the 1960s. Mangeshkar wanted a continuing revenue stream, and Rafi’s position was that once the artiste was paid, that was it. Because of this row they refused to sing together for several years. Thanks to modern copyright law, this issue is largely resolved for the creative world of art, literature and music.
But what about the sale of land? What about the rights of poor farmers or tribals who sell their small parcels to industrialists, only to later find that much riches have flown from that same land to the new owners? No, we are not talking about forcible land acquisition in the name of “public interest” or for “urgent reason”. That concept has been discarded de facto, and the Land Acquisition Act of 1894 will change de jure soon, thanks to Singur and the aftermath. But even if land is acquired at so-called market-determined rates, this problem of persisting claim of the seller remains. It becomes acute when the asset being transferred is a scarce resource, such as land, water, mining area or even spectrum. For such items, the concept of a “market price” that can reveal all the future value, flowing in over several decades, is difficult to capture. In the case of spectrum in 1994, the market-determined price turned out to be unreal, and the seller (that is, the government) had to bail out the buyers by changing to the revenue share model, rather than outright sale. More recently, in the case of industrial lands in Haryana and elsewhere, it is the buyers who will have to reserve a permanent revenue or profit share for the original sellers.
The problem of allocating scarce natural resources, such as land, water, mineral rights and forests, is a tough one. In India, it gets more complicated because of a four-way peculiar conjunction. Many valuable minerals lie beneath dense forests, which are home to adivasis and also to precious water bodies. Untangling this four-way snarl in a democratic framework needs imagination, patience and skill. The problem is confounded by insurgency, and an iron fist alone certainly cannot help untangle the mess.
In February this year, the government set up a high-powered committee to examine how such allocations are done and monitored, and what changes are required in the existing institutional and legal framework. The framework will be studied and modified if necessary, based on considerations like efficacy, suitability, practicality, transparency and fairness. Since the committee will deal with the allocation, pricing and utilisation of resources, the question of sustainability of resources will also figure.
Economists may be tempted to suggest one magic bullet that addresses all three challenges together — whom to allocate, at what price and how to ensure optimal utilisation. That magic bullet is auction. A properly conducted auction (like the recent 3G auction) can elicit the true worth from credible and genuinely interested parties, who, in turn, having won the auction, will utilise the resource optimally anyway. Unfortunately, the “ground” reality is quite different, especially when it comes to land, forests and mineral rights. An auction not qualified by several conditions may lead to a very inefficient allocation.
This is because of several reasons. For instance, in mining the first step is prospecting and exploration. For most minerals, except oil and gas, we still lack a coherent mechanism to enable efficient exploration with private risk capital and technology. Hence no major new reserves are discovered, and policy is focused only on rationing the known reserves. It is not by auction alone that you identify new explorers. The second step is extraction and value addition. Here too, a socially optimal solution might require much fewer large-scale time-bound mining projects. Whereas through auctions, in practice, we have several small scattered projects, possibly doing more long-term harm. That’s because small- scale projects cannot afford the technology necessary for deeper mining. The third step is evacuation of the mineral. The bottleneck here is the logistics infrastructure, which is outside the control of the mine bidder. For example, it is well known that coal availability in India has been hampered by non-availability of rakes and wagons. Recently, the Planning Commission predicted that India may soon end up importing 250 million tonnes of coal if domestic coal availability does not go up. But even for that scale of imports, our ports do not have the capacity! The proliferation of many small ports will not make us strategically ready to import large quantities of coal. The fourth step of mining is conservation and returning the mine area to its original pristine state, that is, the replenishment of nature. With such complexity, it is unclear whether a single mechanism of auctioning mine blocks will alone identify the right allottee of the natural resource.
It is obvious that the government can no longer be the monopoly prospector, explorer or miner (as in case of coal). Hence it has to find ways to identify the right private-sector players, who are in it for a long term, who will fulfil the four stages outlined above, and who will not abandon midway or sell out. In the allocation of industrial land, too, the government is keen to get out of the land acquisition game, letting private parties negotiate. It will allot not on the basis of bids alone, but to those who agree to give an equity share to the sellers of land. For mine allocation, it would like to connect area development with revenues and royalties.
An auction these days may work well to allocate a Husain painting, but for mines or land, it will not suffice.
