Land Scams

As we digest the daily news about Singur, Nandigram, and SEZs, we couldn't go too wrong reading what Ramesh Ramanathan had to say sometime ago:
I wrote an article in this publication a few weeks ago that was critical of SEZs. Among the responses were a surprising number from professionals in the corporate sector – those who were involved in working on SEZs. And their sentiments were deeply disturbing: without exception, the common refrain was that the SEZ idea was a runaway train, and that it was using the singular, concentrated force of greed and self-interest to rip open the land market in the country. An executive from one of the big four consulting firms told me, “I advise my clients on succeeding in being a part of these SEZs, but I am selling my soul.” Another lawyer said, “Unfortunately, it’s the biggest money-making opportunity we have ever seen.” A senior IT industry executive said, “I agree that it’s a land scam, and it shouldn’t be happening. But we ourselves are bidding for them, because we can’t be left behind. I have my shareholders’ interests to protect – they would tell me, ‘You want to be Gandhi, don’t do it on our money.’”

I consider myself a middle-of-the-road person: I believe in the potential of the market, but also in an affirmative state that regulates the market vigorously and transparently. I recognise that public policy choices are not black-or-white, and need to balance various views, while always keeping the citizens’ and the nation’s interests in mind. But for the life of me, I cannot figure out the compelling argument for SEZs in India . Their stated benefits are debatable. On the promise of job creation, five lakh jobs is too trivial a target for the incentives being provided – close to 50,000 hectares of subsidised and clean-title land, leaving aside the tax-breaks....
And also what an economist had to say in general about governments taking land from Peter to give to Paul:
There is a general view that where there are large externalities — urban renewal programmes, for instance — there may be grounds for government to try and buy land and help renew a city or part of a city. But the dangers of doing this when there is a single firm without externalities are enormous. This is because the government often uses the right of eminent domain with compensation below market price.
In general, there is a price at which people would sell their land. The reason these firms ask the government to do it is because they don't want to pay that market price. So once you get into that mindset, it becomes a very dangerous precedent.
You have a problem when land is fragmented, or there are land market inefficiencies, and difficulties in getting clear title. Markets might be so poorly developed that businesses can't acquire land and that becomes an impediment to development. Of course, the right answer is to solve the problem of the land market and not to solve it for this particular person by taking over that particular piece of property!
Of course, as the interviewer in the above interview asks, it is a paradox that the same industrialists who want less and less of government interference when they want to sell, go to the very same government to acquire land.

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