The Real (E)State

Land has been an ancient and practised investment avenue for all economies . Yet, its valuation, globally has been a matter of conjecture.
The present Land Acquisition Bill being proposed by the UPA government has seen pretty extreme views from its proponents as well as opponents. Put very simply, the proposition in the bill sets out an auction process by prospective acquirers for land –the proceeds of which are to be distributed among the holders of the property. It is also proposed to devolve more powers to local governing bodies in the auctioning process.
It is interesting to note though that both parties to the debate agree on the two major flaws in the current acquisition process. Firstly, at present, the government acquires land for creating SEZs or industrial development complexes (IDCs) at prevailing market rates for land in the adjoining areas and distributes it to the industrialists coming up with Greenfield Projects . Along with a supposedly hassle free allotment of land, they also receive massive waivers/cuts in taxes , subsidies in input costs of power , water and rentals . This easy sailing that industrial houses have in their infancy , particularly very soon after the acquisition of land , when sensitivities of the deprived run high gives rise to the perception, real or otherwise, that the deal is botched.
Secondly, the present process is almost unilateral in vesting the powers of decision making related to acquisition in State Governments promoting the project. Local Governance , whether it is at the level of Panchayat or Tribal Advisory Councils , has no role in deciding at what rates, on what terms and how acquisition process will take place. The more are the layers between the decision makers and the affected , even in a democracy, the greater is the room for obfuscation, arbitrariness and discretion in land allocation process. The fears of a big state , some true and some stoked by alarmists , begin to jettison the process.
In essence, both the concerns are a direct outcome of the lack in transparency in the process. The debate centres on whether the current legislation creates more room for transparency or further compounds the scope for arbitrariness.
Currently, the government acquires land at prevailing market prices. Even considering the fact that exercise of price determination is done with due diligence and does even factor in the exact probability of appreciation in the prices once the project begins to mature , the state’s guess is as good as fortune teller’s . It is an established fact that project valuations vary from one study to the next and possibility of speculation on future values and mismatch in valuation can never be ruled out. What makes this process worse is that the government bears all risks of being exposed to public anger and dissatisfaction if prices in the future for land asset outstrip those paid as compensation initially . The corporates, on the other hand, set to profit from this speculative rise in property prices as a result of project development and can actually due to their deeper penetration of asset markets , book profits and exit out by selling the entire property once acquired, as a single consolidated asset, something that is beyond individual holders’ capacity .
This system that pins all responsibility on the state and offers nearly unopposed profit incentives to the corporates , besides cost subsidies is at the root of this conflict.
Where competitive bidding of auction clears the fog is in transferring the responsibility of land valuation from the government to the industry . Any industrialist , in an auction process for land, beginning with the pre-decided base price , is free to decide what he is willing and able to pay for the future flows of income from that property . Auctioning through competitive bidding is expected to bring in more transparency and responsibility from the corporate side in the land acquisition process. Assuming that the base price in the auctioning process proposed is likely to be set at prevailing market rates, this process is expected to witness a greater and more fair compensation to land holders . This would placate those concerned about the unfair economics in terms of input subsidies granted to Greenfield projects during the gestation period.
Bringing in local governing bodies as main arbiters in deciding the terms of acquisition and vesting in them responsibility for distribution of compensatory allocation is another move that could reduce frictions in land acquisitions. For one, distribution of compensation will more accountable with authorities in this case being more connected to the local communities than state bureaucrats and peer review and community vigilance will reduce the opportunities for corruption and wastage that otherwise arise in a hierarchical system.
Another plus of the process is that it simplifies the communication between the buyer and the seller. The terms of agreement in this process will be framed considering the negotiation for genuine concerns of the displaced and not exigencies of federal politics. It also softens the resistance to acquisitions as it brings down the facts and prospects of development right to the intended beneficiaries of the process.
It is when this debate about the future of communities facing acquisitions is taken to them , that the process of economic progress will be privy to more informed arguments about this evolving system , freeing itself from being tossed around between ideological shibboleths of Regressive Activism and industry-state nexus that has come to dominate the discourse.