Column : Time to encash govts land bank

Written by K Mohandas | Updated: Dec 21 2012, 07:05am hrs
The Kelkar Committee on fiscal consolidation has suggested, among other things, that the central government should monetise land resources, especially to fund urban infrastructure. Adam Smith had written: In every great monarchy of Europe, the sale of the crown lands would produce a very large sum of money, which, (can be) applied to the payment of public debt. Further, he theorised that when the crown lands became private property, they would generate higher revenue for the government.

The biggest landlords among the central government departments are defence (with about 17.53 lakh acres) and the Railways (with about 10.5 lakh acres). The major ports have about 2.58 lakh acres, including prime urban land in Mumbai and Kolkata and vast areas in Kutch. Several other departments and public sector undertakings also own unused or under-utilised land.

The earliest rules governing defence land are of 1925, with several subsequent notifications on the use of various categories of land for various purposes. The Indian Railways has set up the Rail Land Development Authority with the primary objective of commercially developing vacant railway land, and thereby raising revenue through a non-tariff measure. The shipping ministry has issued land policy guidelines to the major ports.

The rules and guidelines are regulatory in nature. There has been no planned action for generating value from government land. Even the Railways has achieved only nominal success despite creating a separate statutory authority for the development of land. There are several issues associated with the transfer of ownership or possession of government land to the private sector.

First, there has to be a clear policy perspective, recognising that land is an invaluable resource, which is to be utilised for the most appropriate purpose and that it would be necessary or even desirable to transfer the land to private entities for deriving maximum economic benefits for the state. Many of the arguments in favour of disinvestment of public enterprises are relevant here also, but there are major differences. Land is a permanent asset, it is immobile, its supply is fixed and the price movement generally predictable, it does not normally depreciate in value, its utilisation can be regulated by the state and, most importantly, the land can be resumed or acquired by the government for public purposes.

Second, there has to be a database of the status of all government land, with information on its utilisation, the possible future uses, current possession whether legal or illegal, and all other relevant details, although it is not a pre-requisite for initiating implementation of the policy. Many of the organisations already have the data, and updating it would be a simple task.

Third, adequate flexibility has to be built into the policy for choosing, subject to the guidelines, the appropriate manner of transfer of the identified parcels of land. It could be outright sale, or lease or joint development. Long-term lease with upfront realisation of the lease rent has been adopted in several projects developed through public private partnerships. There could be several innovations in the structuring of projects with private investment.

Fourth, the policy on the utilisation of the sale proceeds is critical for the economic justification of the activity. It would be too simplistic to prescribe that the government should use the receipts for creation of capital assets or for retiring debt. The income from railway land can be legitimately used for development of rail infrastructure; but there are several other instances where the custodian of the land is not the the best user of the sale proceeds. Using the money to clear bad debts may be bad ethics but is good economics.

Fifth, the processes and procedures have to be fully transparent and, at the same time, dynamic. The credibility of the exercise depends on well-laid-down procedures and adherence to them. The most transparent method is obviously auction, and among the various ways of auction, e-auction has higher credibility. But auction need not always be the compulsory route for disposal of natural resources. The Supreme Court has gone into the matter in some detail in the findings delivered on September 27, 2012. Revenue maximisation cannot always be the aim of a government and it may be necessary to adopt non-competitive measures in certain circumstances. But these should be rare exceptions based on strong grounds.

Sixth, arising from the above, is the question of utilisation of the land. The use of urban land has to be governed by the town planning scheme. Local planning becomes extremely significant if the future development of the land impacts the surrounding area in terms of transportation and other infrastructure requirements, environment, aesthetics etc. For example, massive commercial development over a railway station would necessitate calibrated measures for decongestion. Then there are the slums in urban lands, for which a separate dispensation will be necessary, not forgetting the Rajiv Awas Yojana already in operation. In practical terms, the local authorities have to be consulted and involved in major developments.

Last, there is the critical issue of the public sensitivities associated with the transfer of government land. There is now keen interest in real estate matters in the Indian urban mindset. Such public interest is certainly valid and desirable; it is also fully understandable considering the appreciation in land prices and the scams that have been surfacing periodically. The public suspects that private land transactions involve black money, and that government land transactions involve kickbacks. Karl Marx writes about the colossal scale thefts of state lands, after the Glorious Revolution. Estates were given away, sold at a ridiculous figure, or even annexed to private estates by direct seizure. The design of the land disposal policy and its implementation should reckon these sensitivities. On the other hand, if the system itself is complex and time-consuming, the programme will not take off. There has to be adequate delegation of powers to the departments and agencies, and the exercise of powers and the oversight should preferably be by committees of equals (and not by committees of officials in the direct hierarchy).

The value of land lies in its utilisation; the under-exploitation of its potential for fiscal and economic benefit can be called a serious economic lapse on part of a government facing a severe resource crunch.

The author is former secretary, ministries of shipping & overseas Indian affairs, government of India