If you thought the Singur land-for-industry saga has ended with the exit of the Tatas, well, think again. The issue has taken an ironical twist in recent weeks and continues to raise important public policy questions. Of late, the West Bengal government had invited BHEL to build a factory there, which did not work out.
But, having been instrumental in getting the Tatas out of Singur and keen to avoid the ?anti-industry? label, Mamata has proposed a railway coach factory at the site using only the 600 acres ?willingly given? by farmers and returning the 400 acres of unwilling farmers. The state government naturally is in a bind and has reportedly agreed to the proposal. There is just one small issue. The land is still leased to the Tatas and they must return it before any other project can take place. Ratan Tata has gone on record saying that he is willing to return the land, provided Tata Motors is compensated for the investments made there.
This seemingly logical demand opens a Pandora?s box from a public policy standpoint. First, all of the nearly 1,000 acres there were acquired by the government from farmers using the 1894 Land Acquisition Act. The compensation paid to the farmers was based on an estimated market price of their holding plus a premium. If one of the farmers there had claimed that he had actually sunk in a Rs 10,000 investment on fertilisers and pesticides in his plot to upgrade its productivity, the government would most certainly not have compensated him for that investment. Now that the state needs the currently unused land for another industrial purpose, should it compensate the current holder, that is the Tatas, for their investment, even though (or particularly because) its investment ran into thousands of crores? Would that not violate the equitable treatment principle? Besides, nobody, certainly not the government, really compelled the Tatas to leave. So, this was a political risk they had taken and they should be prepared to live with the outcome.
A counter to this would be that the investment has changed the nature of the land?from agricultural to industrial?and therefore Tata Motors can ask for at least partial compensation based on the higher market price. The catch here is that there is no ?market price? here since there is no free market for this, very special, property. The only way to ascertain market price would be to auction the 600 acres. It is always risky to predict auction outcomes, but it is highly doubtful that anybody would want to pay the lease price plus the full investment. The political factor would discourage buyers and the lack of free market would induce them to bid lower. Tata?s demand for compensation for its investment is on shaky grounds.
Can and would the government unilaterally push the Tatas out of the property? Legally speaking, it depends on the lease agreement. For instance, can the Tatas sit on the land indefinitely without putting in place an industrial project? If the lease does not expire on non-fulfilment of a specified use clause, then the government will have little power to evict the Tatas as it may be difficult to use the land acquisition law for a single holder. Of course, Tata Motors itself will find it costly to leave the land fallow and continue to pay rent (which increases substantially with time). So all this is a bargaining ploy for Tata Motors as well. There is certainly the option of an alternative Tata project on the site, but Ratan Tata has made it clear that no such plan is currently afoot. He has also expressed his desire to vacate the plot, provided Tata Motors is compensated.
The cost itself is sunk and incurred, it is now only a question of apportioning it. For the Tatas, holding on to the land means paying rent and remaining embroiled in a much-publicised political dispute while letting it go without compensation is a large write-off. For the government, charging the new holders a land development fee and passing it on to the Tatas is the only option; they certainly cannot pay it out of the state budget. As for Railways, paying a reasonable land development charge should not be an outrageous notion but Mamata, like any good negotiator and given the relationship between the three players, is likely to refuse and ask for the same rental terms as the Tatas, and do everything to add to the government?s discomfiture.
Whether the next round of this saga gets played out in the courts, or in the streets, state governments all across India should draw their lessons about the pitfalls in such land-for-industry deals.
The author teaches finance at ISB, Hyderabad
