Urban reform gets going

Why does capitalism succeed only in capitalist nations and fail in so many others? This, of course, is the famous question posed by the Peruvian economist, Hernando de Soto, who explained this by arguing that most developing countries locked up valuable capital by making it difficult for firms to start businesses, to shut them down, and so on "" de Soto's framework is the basis of the World Bank's annual global survey on Doing Business. High on this list is land title "" wherever this is not clear, as is the case in India, it becomes difficult for buyers to buy land, for landowners to raise money using their land as surety, and to develop a vibrant market for mortgages. In the event, valuable capital which can be leveraged for creating economic value gets locked up. Indeed, the quality of land records is so bad that in states like Maharashtra, the statute even says "no suit shall lie against the state government or any officer in respect of a claim to have an entry made in any record ... that is maintained in this chapter or to have any entry omitted or amended". That is, if you buy a house based on the government's land records and are not able to take possession later on account of a dispute over ownership, you can't sue the government for having failed to keep accurate records. Indeed, given that a large proportion of court cases in the country relates to cases involving unclear property title, the legal costs are another huge cost that the country has to bear. So it is not surprising that, some years ago, the consulting firm of McKinsey & Co estimated that India's GDP would grow by around a percentage point more if the problem of doubtful land title was resolved.

There have been sporadic attempts to fix this across the country, but no sustained effort. Now, it appears that, as part of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), at least three states are working on fixing the problem of dodgy titles "" under the Rs 50,000 crore JNNURM, states can access low-cost funds provided they promise to carry out various reforms, ranging from lowering stamp duties on land transfers to getting rid of archaic rent control laws and going all the way to fixing land records. The models being adopted by Rajasthan, Andhra Pradesh and Karnataka are all different, but the end result will hopefully be the same "" in the cities where the programmes are to be rolled out, the state will directly or indirectly guarantee titles to land as recorded in the official records. So, if you buy a property based on official records and the property falls into dispute, the buyer will be compensated. While the cost of failure appears high, for the state as a whole it is probably a win-win situation "" if the number of property transactions rises once buyers feel confident that the title is clear, stamp duty collections will rise commensurately and, till the time they do, the JNNURM funds will help tide over any problem. If the JNNURM succeeds in getting all states to reform land laws and, as a result, unlocks huge swathes of capital, it will be money more than well spent.