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T N Ninan: Land marked by policy distortions

Of all the markets in which politicians interfere with prices, the land market is probably the last that will be reformed

T N Ninan  |  New Delhi 

T N Ninan

The “circle rates” at which the Delhi government collects stamp duty on property transactions have been raised three or four times in the last four years. In the more expensive residential areas of the capital, the cumulative increase is about nine-fold; the increase is three-to-four-fold in less expensive areas, and twice in the cheapest areas. This is a period in which property prices are said to have stabilised and then fallen, with reports suggesting that a further fall may be coming. The scuttlebutt is that the market rates for property have fallen in the ballpark region of 30-40 per cent. Consequently, the circle rates are now about 50-75 per cent higher than the real rates in the market.

This has created a Kafkaesque situation. You have to pay stamp duty at a rate much higher than your purchase price — but that could mean you have to declare a higher (fictitious) price as your actual purchase price. Naturally, this would be more than the money that changes hands. The second option would be to declare the lower (actual) price but pay duty at the higher rate. Either way, the taxman could come after you on the suspicion of a cash component in the deal. With a draconian black money law in the works, who wants to run the risk? The reported result is a virtual freeze on high-priced real estate transactions — which should mean a loss of revenue for the oh-so-clever government!

Let’s move elsewhere, to where highways are being built. The Times of India quoted the National Highway Authority of India a couple of weeks ago to say that the cost of land for building highways had more than doubled in the last one year to Rs 3 crore per hectare. It is odd that highway land should become so expensive when the real estate market is in the dumps. The nub of it is that the total cost of a four-lane highway now stands at Rs 16 crore per kilometer. If the government intends to build 20 km of highway per day, the annual cost could be Rs 1,16,800 crore. Somehow I doubt that that kind of money is available with the government. Does this have anything to do with the land law that was passed in 2013?

Whether it does or not is now a pointless discussion since the government’s bid to amend the law, and ease some of its complicated processes, has been defeated. Still, the CEO of Niti Ayog pointed out the other day that land acquisition under the law could take up to five years; another economist has calculated four years. Even if it is two or three years, it should be considered too long. Consider that it took all of 30 months for China to build the high-speed railway line over 1,300 km from Beijing to Shanghai. In that much time, the Indian railways cannot even acquire the land it needs for the Mumbai-Delhi dedicated freight corridor.

There is an unreality to these situations that may or may not strike our law-makers. Most of them invest their personal surpluses in land and therefore should be well aware of the anomalous situations being created by their actions. Indeed, many of them will be front-running highway projects by buying up land from farmers before the project is announced, then selling it to the government at the multiples of market price stipulated in the land law, and making a killing. Of all the markets in which politicians interfere with prices (two that are currently debated being sugarcane and electricity, with the latter responsible for Rs 3 lakh crore of accumulated losses of distribution companies and electricity boards), the land market is probably the last that will be reformed.

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First Published: Fri, August 07 2015. 22:50 IST