It is not often that land bought at Rs 63 lakh is sold at Re 1. The Punjab government has done exactly so. It has allotted 70 acres of land to the Indian School of Business (ISB) for building a new campus at Mohali near Chandigarh at Rs 1 per acre. This baffling transaction has stirred the hornet?s nest with the state government coming under fire from all quarters.
The transaction is being criticised on various grounds. The first is its commercial rationale. The state government has attempted to act as an efficient intermediary in the transaction by first buying the land and then selling it. The land was procured from farmers by paying Rs 63 lakh per acre. The current market value of the same land is two and a half times the price at which it was bought. Farmers have obviously not benefited from incremental gains in the value of the asset they once held, although this is not an exceptional case. In India?s mostly opaque land markets, there are hardly any effective mechanisms for imputing the future value of land from its proposed use in the current price at which it is being transacted. Farmers lose out on most of these occasions and they did this time also.
The second point of criticism is the land being sold at Re 1. The criticism is not for Re 1 per se; it is for land being sold at a price way below its purchase value, forcing considerable losses to the government. Rational economics would have implied sale at any price above Rs 63 lakh per acre. But economics was surely not the motivation behind the transaction. Conceptually, the transaction appears pretty similar to central government operations in the PDS: issue of food grains from ration shops at prices far below the rates at which grains have been procured. It is also similar to cross-subsidisation of electricity and transport services where some consumers pay more for subsidising others. In the current instance, the farmers have actually subsidised the final user of the land.
The question being raised is what drove the transaction. One way of answering the question could be to examine the potential long-run benefits that might have inspired the deal. If such benefits are substantial, then supporters of the transaction can be on a good wicket.
From the Punjab government?s perspective, why would it want to give land to ISB? ISB has unshakeable global reputation as an education service provider. Getting the ISB to open a campus at Punjab would mean the state entering a select group of sites housing elite institutions. There are hardly any ?top brand? education institutes in Punjab at present. ISB will fill the vacuum to a large extent.
There could be a few positive spin-offs of an ISB in Punjab. It will impart an upbeat outlook to the state?s corporate image. Right now, Punjab isn?t exactly on top of the charts in this respect. ISB can encourage other corporates and investors to follow suit. Its presence can also help in the growth of several modern and capable SMEs in the state that would aim to absorb the products from ISB.
While these potential spin-offs may have influenced the Punjab government?s decision, there are a couple of issues worth noting. ISB (or a similar institution) may be a necessary condition, but is certainly not a sufficient condition for improving the corporate image and business outlook of the state. Had that been so, then IIT Kanpur, IIT Kharagpur, IIM Kolkata and IIM Lucknow would have transformed their respective states and cities. It requires much more than presence of top-notch business schools and engineering institutions for transforming economic landscapes. The neighbouring state Haryana is the best example of a more sought-after business location despite not having any institution even remotely comparable to brand ISB.
The second issue is whether the state government should have tried recovering the losses of giving away land at almost zero prices by taxing other institutions. The land allotment to ISB has been accompanied by a levy of property tax on the local education institutes. The latter are further handicapped as they can?t raise fees for recovering the tax due to state government rules to the contrary. This, then, becomes a strange example of local institutions subsidising the ISB.
Some of the ill-will generated could have been avoided if ISB was asked to partner with a local institute. That would have given the local education community greater ?ownership? in the venture. Unfortunately, the state government has not displayed any such intention. The deal, therefore, remains a political and economic embarrassment.
?The author is a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views