Land and the problem of inequity

By 2050, India will be the most land-scarce major economy in the world, but any solution first needs to recognise the unequal deployment of land

In my last column “Building back better” (Business standard, January 11), I argued that the binding constraint to India’s development transformation was the unequalising allocation of land, capital and human resources. In this column and the next, I will focus on the land question.

The utilisation of land in India has always been vexatious. The situation is getting steadily worse. By 2050, India will be the most land-scarce major economy in the world. This problem has been recognised, especially in a brilliant exposition in 2014 in the columns of this newspaper (Devesh Kapur, T V Somanathan & Arvind Subramanian, Business Standard, July 20 and 21, 2014). However, that approach looked at land as a market commodity, and proposed technocratic and institutional solutions to fixing land markets. This does not make explicit the unequalising deployment of land in its private, public, and common allocations.

The land misallocation problem has three major socio-political drivers:

1. Returns from land ownership in India derive not from its use but from the scarcity rents secured by deployment for unequalising development.

Structural change involves considerable alterations in the geography and topography of land use. These should result in greater and more inclusive benefits to the population. But if the changes in land use are cornered by a minority who benefit solely from their legacy land ownership, then this further concentrates wealth and inequality, and distracts from good capitalism. The focus is on the rents from scarcity value, rather than on profits from deployment in the most productive activities.

When the textile mills and manufacturing units in Mumbai were closed, a mafia of bankrupt legacy industrialists exploited the decline of the mills and factories by building expensive commercial and residential real estate for the rich. Similarly, in countless Indian cities, agricultural land was denotified for builders and developers to build high-end housing for an affluent middle class. Their access to cheap land was subsidised by the State — first to “ cooperative housing societies” for every sort of rich person, and then to developers and promoters after 1991, even while the poor languished in slums and shanties.

Almost all changes in land use since Independence and, especially, since 1991 have enhanced economic and social inequality. By doing so, they have encouraged people to  behave like precapitalists— to value the land for its own sake and not as an input to maximise inclusive growth. Just as a country that covets land but does not care about the people on it is doomed to fail, so an economic project that uses a very scarce resource to solely benefit the rich and widen inequality is doomed to meander in irrelevance.

2. The State is the largest owner of land but its weakness leads to fracturing, subinfeudation, and further rents extracted from deploying land to support unequal growth.

At a conclave in Delhi, I asked a many-starred Air Marshal why Pune’s Lohegaon airport could not be fully civilian and a new swanky airport built for the Air Force further afield. He said, “Because it’s our land. It does not belong to the civilian government.”

A revealing answer. Government land is partitioned between units of the State. The central government has no unitary control over defence, public sector, or railway land. It does not even know exactly how much land it owns! Thus, the government spends a lot of time and effort on land acquisition but there is enough government land in every major city in India to make these cities slum-free in five years!

To make things worse, much of the government land has been given over to the rich for their pleasure. From the terrace of the Oberoi Hotel in Delhi, you see an expanse of green accessed exclusively by the rich — the Delhi Golf club, Gymkhana Club, the India International Centre, the Air force club etc, collectively occupying more land than Delhi’s largest slum.

The government being India’s largest landowner could have been an asset. But it is a weak zamindar, unable to use its land assets coherently, and worse still, is susceptible to elite capture.

3. The commons are used to support inegalitarian economic development.

The commons of a nation are natural resources, including land, that are shared by communities and not owned by anyone. The government acts as the custodian and regulator of the commons.

With rising environmental concerns, the commons now receive public attention, but in India, the story is a depressing ( and extremely well-documented) one of rising inequality. This happens in two ways. Either the commons are encroached, with full state approval and collaboration, to be used for the benefit of the rich — be this the destruction of the Western Ghats and the Himalayas,  or mining depredations in Odisha and Chhattisgarh, or they are preserved by the State but access to them is granted for the pleasure of the rich to the exclusion of local and indigenous communities. Our wildlife sanctuaries, deserts, riverbanks, beaches and biodiversity locations cater to the lifestyles of the rich and well-connected, even if this means destroying indigenous communities and destroying their livelihoods. Lately, it would seem even Lakshadweep and the Andamans are to meet the same fate.

In the next article I will propose an equity-led approach to the land misallocation problem.

The writer is visiting senior fellow, ODI, London, and former member, Economic Advisory Council to the Prime Minister