by Vivek Kaul
If the Land Title Certification Authority is satisfied “about the veracity of the information and authenticity of such documents”, it will certify the “status of [the] applicant as [the] lawful holder of [the] title of the urban land specified in the application”. This initial provisional certificate will be valid for a period of two years.
If, during the period of those two years, no counter claim or objection is received by the Land Certification Authority, it will, after the two years are over, issue a permanent certificate of title for the land. The state government shall stand as a “guarantor for the genuineness and authenticity of the title”.
This guarantee will go a long way in establishing clear land titles in the state of Rajasthan. This data will be maintained on the Computerised Land Evaluation and Administration of Records (CLEAR) system, a central system of electronic data storage. If the entire system works as it is envisaged to, then the number of property disputes is likely to come down, given that people will have a clear title to the land that they own. This will be guaranteed by the state government.
Clear titles would also lead to the unlocking of what the Peruvian economist Hernando de Soto calls dead capital. De Soto essentially points out that, in the Western countries, land and buildings are also used as capital because land titles are clear. This is not the case in developing countries like India. He calls these assets in developing countries dead capital.
As he writes in The Mystery of Capital—Why Capitalism Triumphs in the West and Fails Everywhere Else: “Why can’t buildings and land elsewhere in the world also lead this parallel life?… My reply is: Dead capital exists because we have forgotten that converting a physical asset to borrow money to finance an enterprise, for example, requires a very complex process.”483
The presence of clear land titles essentially simplifies the entire idea of being able to borrow against dead capital. As de Soto writes: “Any asset whose economic and social aspects are not fixed in a formal property system is extremely hard to move in the market. How can the huge amounts of assets changing hands in a modern market economy be controlled if not through a formal property process?”484
The lack of a formal property system hurts. As de Soto writes: “Without such a system, any trade of an asset, say a piece of real estate, requires an enormous effort just to determine the basics of the transaction: Does the seller own the real estate and have the right to transfer it? Can he pledge it? Will the new owner be accepted as such by those who enforce property rights?”485
In this scenario, it becomes difficult to sell land/buildings as well as raise capital by borrowing against it. Once the titles become clear and the government guarantees it, the problem gets solved. Also, with clearer titles, corporates are a little more likely to acquire land for their projects on their own than wanting the government to do it for them.
There are further benefits of clearer land titles. India has 12 crore, or 120 million, small and marginal cultivators and 85 lakh retail outlets. A strong land record title system would let these entrepreneurs “prosper and gain the benefits of economic growth”.486
If what has started in Rajasthan spreads to other parts of the country, including rural India, there would be other benefits as well. As mentioned earlier, the average size of an agricultural land-holding has been falling over the decades.
As the same land is divided between more and more family members over the generations, the average landholding size has fallen dramatically. Furthermore, as per the Agriculture Census of 2010-11, small and marginal holdings of less than two hectares account for 85 per cent of the total operational holdings and 44 per cent of the total operated area.
In fact, the variation in average landholding size across states is huge. Hence, the smaller the landholding, the more the number of landlords/farmers that have to be dealt with. As Chakravorty points out: “In Kerala, where 96 per cent of all landholding[s] are marginal, the average marginal holding size is 0.35 acres. In Bihar, where almost 90 per cent of all holdings are marginal, the average marginal holding size is 0.62 acres.”487
Chakravorty has used data from the 2005-2006 agricultural census. How do things look if we were to use data from the 2010-2011 agricultural census? The above paragraph would read as follows: “In Kerala, where 96 per cent of all landholdings are marginal, the average marginal holding size is 0.33 acres. In Bihar, where almost 91 per cent of all holdings are marginal, the average marginal holding size is 0.61 acres.”
As we can see, the numbers haven’t changed much between 2005-2006 and 2010-2011. Chakravorty further points out: “In both these states [i.e., Bihar and Kerala], the marginal holdings make up a little over half of all [the] agricultural land area. In Tamil Nadu, Uttar Pradesh and West Bengal, over 75 per cent of all landholdings are marginal. It may be very difficult to bring these lands to the market.”488
In Bihar, farmers with marginal land own 57 per cent of all the agricultural land. In Kerala, the number, as of 2010-2011, stands at 58.6 per cent. In Tamil Nadu, Uttar Pradesh and West Bengal, 90 per cent, 79 per cent and 82 per cent, respectively, of all landholdings are marginal.
What this means is that the moment a large area of land needs to be acquired for an infrastructure project, or for setting up a factory or digging a mine, a large number of landholders need to be dealt with. And this is not easy.
Furthermore, many other states, like Gujarat, Rajasthan and Punjab, have larger-sized average landholdings. How do things look in these states if we use the 2010-2011 agriculture census data? The average large landowner in Gujarat owns around 52 acres. The average size of a landholding in Punjab is around 9.3 acres.
Hence, it is easier to acquire land in some states (like Gujarat) than it is in others (like Kerala). The situation would have only got worse since 2010-2011, given that data beyond 2011 is not available as yet.
Clear land titles can clearly help India’s 120 million (12 crore) small and marginal cultivators. It is important that what has started in Rajasthan start to spread in other parts of the country as well and that other states get around to passing a similar law. These are the issues that the government needs to be concentrating on in order to make the life of the average citizen easier. But that, as we have seen throughout this book, isn’t really the case.
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There are several other reasons that corporates like governments acquiring land for their ventures. As seen earlier (in Chapter 4), the average size of an agricultural landholding has only got smaller over the years. The average size of an agricultural holding has fallen by 59 per cent to 1.16 hectares between 1970 and 2010. This means that, if any corporate wants to acquire land on its own, it has to deal with a large number of individuals. Take the case of Singur in West Bengal, where Tata Motors wanted to establish the plant which would manufacture the Nano automobile.
The 1,000 acres of land (or around 405 hectares, given that one hectare equals 2.47 acres) acquired in Singur came in such small land parcels that there were nearly 12,000 owners to be dealt with.489 No corporate has this kind of bandwidth. In fact, the probability of ending up with a legal glitch when dealing with such a large number of people is very high.
As Maitreesh Ghatak and Parikshit Ghosh write in a research article titled ‘The Land Acquisition Bill: A Critique and a Proposal’: “To get a quantitative sense of the problem, suppose that any particular private transaction has a 1 per cent chance of facing a court challenge, causing significant delays. A single or a handful of such transactions has a very good chance of proceeding without a glitch. Simple calculations show that the probability of at least one such legal snag developing (and a single dispute is enough to hold up the entire project) rises to 63 per cent for 100 plot sales, and 99.99 per cent for 1,000 plot sales. For the kind of numbers involved in Singur and many other places, without government participation, a legal quagmire is virtually a certainty.”490
Then there is the issue of Change in Land Usage (CLU). Agricultural land beyond a certain size cannot be
owned, as per the land ceiling regulations. This limit varies from state to state. What this does is that it limits the way a company can go about buying land that it needs for a particular project. A corporate wanting to set up a project cannot buy land beyond a certain size. Furthermore, it is not possible to buy the land and then appeal to the state government for a change in land usage. In order to get a change in land usage clearance (say from agricultural to industrial), a company needs to acquire land beforehand, and that is not possible given that agricultural land beyond a certain size cannot be owned.491 So, this is a bit of a chicken-and-an-egg situation, something which is an outcome of Big Government yet again.
On the flip side, the farmer who owns the land and wants to sell it and is looking for a buyer is also not granted a change in land usage.492 Hence, private companies looking for land for reasonably big projects end up approaching the state government. Actually, the entire system the way it is structured is rigged in favour of politicians, who are in positions to be able to grant change in land usage permissions.
As Ram Singh writes in a research article titled ‘Inefficiency and Abuse of Compulsory Land Acquisition—An Enquiry into the Way Forward’, “the formal and informal (kickback) costs of these clearances”, especially the change in land usage permissions, “are said to be a significant component of the project costs”. In fact, for real estate companies, as well as small and medium enterprises, these costs are as big as the cost of the land itself.493
Hence, it makes sense for private companies to operate through the state government for the simple reason that any land acquired by the state government automatically comes with change in land usage clearances. They don’t have to be separately applied for and dealt with. As Singh puts it: “When land is compulsorily acquired and given to a private company in the name of a public purpose, the CLU clearances are not needed or are provided along with the land. Therefore, the project developers are better off bribing the powers that be and getting them to acquire the needed land. In fact, this route has added advantage for project developers.”494
Furthermore, when land is acquired by the government for private companies, it proves to be cheaper in comparison to when the companies try to buy it directly from the landowners. Other than the change in land usage clearances, the government acquiring land for the private companies also brings down the transaction costs of having to deal with poor land records as well as disputes.
As Ghatak and Ghosh point out:495
The single most important reason the State’s participation is essential in large-scale land acquisition for industry has to do with reduction of transaction costs and expedition of the process. The market often works well in arranging bilateral transactions, but its effectiveness drops exponentially as the number of parties to the transaction grows large, especially in a country like India, where property rights are poorly defined, land records are fuzzy and courts work at a glacial pace. One must keep in mind that a legal problem may crop up even after a private sale has been completed; for example, if the ownership of a plot of acquired land was under dispute, its sale could be challenged in court by other claimants to the property, taking years to resolve and holding up the project due to a stay order till the ownership issue is settled.
The question to ask is how transaction costs can be brought down so that private companies can carry out land acquisition by dealing directly with the landowners. There is a great need for better quality land titles. In this regard, other states need to follow what Rajasthan has done and come up with a law and a system that will give a statutory backing to land records. This should make the entire system more transparent and make it easier for everybody.
As Singh puts it:496
There is an urgent need to update and digitalise land records related to ownership and type of land. These records should be tamper-proof and made available publicly, so that they can be used by owners, potential buyers and courts for verification of titles. There should be real-time coordination between the agencies responsible for [the] registration of land deals and those responsible for [the] maintenance of land records. As such, these measures will go a long way in facilitating voluntary transactions by clearing any uncertainty over ownership of land.
But of course this change isn’t going to happen overnight. The state-level politicians have an incentive in keeping the system going as it currently is. It works to their benefit. Another change that can make land acquisition easier is the doing away of the artificial distinction between agricultural and non-agricultural land. In fact, there have been a few occasions whereupon private companies have been granted exemptions from change in land usage clearance as well as other regulations and they have been able to buy a large area of land on their own. A good example of this is the Gurgaon Special Economic Zone, in which case the developers were able to buy several pockets of hundreds of acres of land. Nevertheless, the project got stuck because it needed around 10,000 acres of contiguous land. There are several other examples as well.497
Again, it is in the interests of the state-level politicians not to change the current way of doing things. Typically, the land acquired by the government for private companies on the edges of cities tends to be agricultural land. With the change in land usage—commercial, industrial or even residential—the land tends to be valued at 30 times the value of the agricultural land.498
This is the value that the state-level politicians as well as private companies want to capture. And this leads to private companies having to bribe state-level politicians in order to get the government to acquire land for them. It all goes against the farmer who wants to sell land, because he can only sell it as agricultural land. Hence, Big Government basically goes against a proper market transaction which works well for everybody.
In fact, there have been examples of landowners coming together and carrying out collective bargaining. More than 1,000 farmers from the Avasari Khurd village around forty kilometres north of Pune on the Pune-Nashik highway came together in 2007 to form a special purpose vehicle to set up a multi-product Special Economic Zone. The trouble was that, over time, the farmers themselves got divided in line with their respective political affiliations to the Congress Party and the Nationalist Congress Party.499 Farmers in Haryana (closer to Delhi) have become extremely rich by selling land to real estate companies at proper market prices.
Or take the case of Magarpatta City, a 400-acre complex on the outskirts of Pune. The complex was developed by a cooperative of farmers. This allowed the farmers to be formal stakeholders in the project and to be a part of the ownership benefits over a period of time. Such collective bargaining needs to be encouraged.500 In fact, by encouraging such collective bargaining and getting rid of the artificial distinction between the different types of land, the urbanisation problem can be tackled as well, with more land becoming available on the outskirts of cities to build affordable residential apartments. But, again, it goes against the economic incentives of state-level politicians.
It is worthwhile asking here how the situation is in other countries. Do governments acquire land for private companies? Or is the situation in India an exception?
Let’s start with China. In China, all land is owned by the government (or should we say the Party?). If all the land is owned by the government, then it’s a question of allotting land and not acquiring it. But China is an authoritarian state. How are things in successful democracies around the world? In the United States, the acquisition of land by the government for private companies under the doctrine of eminent domain became fairly controversial. This led to the Supreme Courts of several American states, like Oklahoma, South Carolina, Illinois and Michigan, placing bans on the acquisition of land by the government for private companies. The final impact of this was that the then President, George Bush Jr., had to issue Executive Order No. 13406 on 23rd June 2006. This mandated that the government could acquire land only for “the purpose of benefiting the general public and not merely for the purpose of advancin
g the economic interest[s] of private parties to be given ownership or use of the property taken”.501
The European Union has no provision for the acquisition of land by the government for private companies. In Japan, the land required is obtained through negotiations with the landowners. Take the case of the expansion of Tokyo’s Narita International Airport. The main mode of obtaining land was through “extensive negotiations and higher compensation packages offered to those who were willing to sell their land”. In Canada, acquisition of land by the government under the doctrine of eminent domain is allowed, but “not to further the commercial interests of a private company”.502
So, the acquisition of land by the government for private companies is clearly not the norm in developed democracies. As the Standard Committee Report points out: “It may be seen that, in all developed democracies, [the] private purchase of land, not State acquisition, is the norm. There is no provision in their laws for the State acquisition of privately held land for profit-making private enterprises, nor, by extension, for public-private enterprises. From the position enumerated above, it may be seen that, in India alone, public purpose is defined as to include virtually every form of enterprise, particularly after the amendments made in 1962 and 1984 to the 1894 Land Acquisition Act.”503
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What all this clearly shows is that the system, as it came to be structured, was essentially loaded against the landowner/farmer. In the recent past, the government has acquired land for private companies. This has led to the impression that politicians and the crony capitalists who operate through these politicians have been primarily responsible for displacing people for land. This is not the total picture.
The government acquiring land for its various projects is the primary reason for the displacement of people. As Chakravorty writes:504