The Indian economy is impaled on fives. The current account deficit in 2012-13 was too close to five per cent of gross domestic product (GDP) for rupee stability, but we hope to lower it this year. The fiscal deficit for the current year is projected at a little below five per cent, but may well touch five. The rate of inflation by the wholesale price index (WPI) is straining to come down to five per cent year on year, but it will be a slow reach. The economy aspires to stay at the five per cent growth rate of GDP achieved last year, but may not get there.
The story goes all the way back to 1991, when we launched our big bang reform. We felt so terrific about having liberalised trade and eliminated industrial licensing that we did nothing whatever to enable freedom of movement for what economists call factors of production, the key inputs without which no production of any kind is possible. The markets for land and labour remained unreformed.
This was a design defect. In the old planning days, we were fond of saying that national policy was right but implementation was defective. This time, no one can deny that the design itself was defective. Fundamentally so. Trade theory, and the welfare benefits of trade liberalisation, are predicated on perfect factor markets. It is presumed that when trade reform renders uncompetitive some lines of domestic production relative to foreign suppliers, labour and land will move easily and without friction from those production lines, which would be closed down, to new avenues rendered profitable at the discovered price of the domestic currency.
Going forward, what should be done to correct that most grievous neglect of factor market reform? The new land acquisition Bill comes 20 years later than it should have, and bears very little evidence of 20 years of thought having gone into it. During this interregnum, land was grabbed by both public institutions and privately owned corporate enterprises. Large payments were made in some cases, but these payments accrued to people other than the erstwhile owner of the land. Agricultural land falls in the domain of states according to the Constitution. Where land grab crossed the line, as in West Bengal, there was a political convulsion. But a national framework for land acquisition continued to be critically absent.
This Bill, by trying to bring in transparency, introduces new rigidities. With its provision for overlapping layers of diligence by committee, it will markedly slow down the pace of land acquisition, and lead to further choking of supply and escalation in the price of land. Authority for driving the process is hugely vested in the district collector. Any officer will be understandably risk-averse, far preferring delay to any hasty step that could bring on a vigilance inquiry. It would have been far better to entrust the process for all land acquisition to a state-level body, which is experienced in the matter of land valuation. The state-level property tax board, recommended by the 13th Finance Commission to standardise property valuation across the state, would have been a more appropriate authority. The social impact assessment called for in the Bill would be better done by local panchayats than by a committee constituted by the district collector.
The Bill interestingly has a provision for preventing hoarding of land by requiring utilisation within five years (among its good features). But it says nothing about the vast hoards of land acquired by both public and private institutions in the pre-reform era. The Food Corporation of India, the defence establishment, Indian Railways, and an assortment of other enterprises both public and private sit on large stretches of real estate which are not in use.
Unutilised hoarded land will clearly have been targeted by squatters. Many of the most egregious disputes have arisen over the terms on which these occupants are to be compensated. The land Bill side-steps this issue. There are incentive problems here, because recognition of squatter rights will invite other claimants who did not have long residence on the site. This calls for inclusion boundaries in the rules accompanying a land Bill; but the Bill itself has to recognise the problem arising out of long decades of neglect of the land issue.
Because the procedures prescribed in the Bill are so cumbersome, conversion of agricultural land is likely to be next to impossible in the years to come. Paradoxically, this will probably shake loose hoarded land, since issues of acquisition and compensation to multiple owners do not arise in these cases.
An excellent recent initiative along these lines by the Delhi government to permit mixed use of industrial land for housing for workers is an example of what has to be done going forward. This finally makes possible the dream of affordable housing to industrial workers in the vicinity of the workplace. It is these withheld acres that have contributed to the land and housing shortage, which are the most visible indicators of Indian poverty. The 13th Finance Commission, in its report covering the period 2010-15, recommended that all government budget documents at national and subnational levels list unused land holdings, including land holdings of parastatals, in physical and value terms. Needless to say, that recommendation has gone largely unheeded so far.
The compensation provisions in the land acquisition Bill in its first Schedule (a ramp-up of the market value of land by ad hoc factors of four for rural and two for urban) and in its second Schedule (for rehabilitation and resettlement) are a mixed bag of upfront and monthly financial payments, guaranteed employment, and housing. A simpler single bundled financial option, preferably equity participation in the activity proposed on the converted land with a guaranteed floor, would have been far better. The complexity of the provisions in the Bill will make the beneficiaries wholly dependent on intermediaries to explain to them what their entitlements are. The services of these intermediaries will not be free of charge.
The writer is a retired professor of economics
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
