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Too much faith in the State

The draft land acquisition bill upholds the rights of a few but does not tackle the real problem.

india Updated: Sep 01, 2011 10:11 IST

The Centre's attempt to bring some method in the madness in the way we build our cities will be judged principally on whether land becomes easily accessible without shortchanging its original owner, usually a farmer. Defining short change is a very tricky proposition. The draft bill on land acquisition, by putting a figure to what a farmer can expect — at six times the market value of village land and twice the value on the outskirts of cities — provides a floor to expectations. That, however, does not resolve the issue over which farmers have been agitating. The price they get for their land has no bearing to the cost of a house in a newly developed suburb in a few parts of India. Sheer demand for housing can undo any 'fair' price a conscientious administration comes up with. The farmers in Noida did not agitate in the 1980s and 1990s when their land was being acquired for a proverbial song. That price became a joke in 2010, after they saw what house buyers were prepared to pay.

This part of the bill derives from the old mindset that states are less exploitative than markets, a hypothesis that is increasingly failing the test in India. The information asymmetry between buyers and sellers of land — the cited reason for state involvement — does not decline after the transaction and could play havoc with proposals to index the price of sale to development benefits. A panoply of regulatory supervision has to be set up to monitor individual transactions over extended periods to see that the gains are distributed according to the 'law'. All this assumes the forces that nudged state governments to cut corners within the existing land acquisition law will cease to operate on the panchayats.

Instead, had our lawmakers reposed slightly more faith in markets, the basic issue could be addressed. The supply response — in this case to housing — is the most potent tool to burst bubbles. If houses become too costly and the market for land is relatively free, more can be built in less time so that prices correct to realistic levels. This helps the house buyer, while reducing the agony of the seller who can see some correlation between the price of his farm and the city block it has become. But in India the bets on house prices are all one way because the State is the principal agency responsible for delaying the supply response. By marking no-go areas and clipping the role of state governments in buying land, the pipe gets narrower. The sheer momentum of a countryside converging on India's cities can easily defy well-meaning legislation that tries to uphold the rights of a few.