Preparing the ground

Land acquisition is in the news again, and again for the wrong reasons. The agitation by Greater Noida farmers against forceful land acquisition without adequate compensation, and conferring huge benefits to corporates, has raised familiar issues. Optimising allocations of finite resources like land, mines, water and spectrum will remain challenging. Transparency on valuation and allocation need to reconcile conflicting objectives. A sensitive balance between maximising revenue, catalysing development, attracting private investment and so on, is needed.

So what should be the key features of an efficient land policy for India? International examples are not replicable. For one, the land-man ratio (between habitable area and the total population) is very adverse. India has 18 per cent of world population, but only 2 per cent of the geographic area. Forest area is also a mere 0.08 hectare per capita against a global average of 0.8. The increased pressure of population on land will lead to a decline in land availability from 0.9 hectare per capita in 1901 to under 0.2 not in the too distant future. Of the 20 largest countries in the world, India has the most unfavourable land-man ratio. Compound this with the other demographic challenge that population is young and will look to livelihood patterns outside agriculture reducing the 60 per cent population which currently live on farm-related activities. The fact that we need to create large manufacturing hubs for generating new employment opportunity compounds the problem. And we have a long way to go to improve the cost and quality of infrastructure power, road density, rural road connectivity and airports. Any land policy must be shaped under these compulsions, challenges and limitations. To be credible, they must be based on the following five considerations.

First, land must be priced more fairly whether acquired by the state or private players. Unfortunately the economics of the land market suffers from many deficiencies. High stamp duty, coupled with the practice of receiving substantial payments outside the banking system suppresses the official cost of land. The huge difference between the time when the intention of land acquisition is announced to its formal acquisition leads to huge cost differences. Besides the future value of land hardly gets reflected. Furthermore, population density, probabilities of economic growth and differences in governance patterns create wide variations in land price between states and regions. Not to mention serious delays in actual project implementation, given time and cost overruns. We therefore need to develop normative benchmarks for pricing land better given serious market imperfections and information asymmetry. While estimating the value of land, international practices like the "special value principle" adopted in Australia and the "highest and best use" method used in UK are worth considering.

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