An improved land policy to facilitate the flow of investment

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India’s economy hit its softest point of growth in more than a decade, amid a global slowdown. From $24.7 billion in 2014, foreign direct investment (FDI) in India rose steadily to reach $50 billion in 2019 and closed just below $60 billion in 2021.

The stock market remained stable despite constant rate hikes by the US Fed, triggering the flight of the dollar from emerging markets. A renewed interest in manufacturing could be a game-changer.

The series of reforms, aggressive policy initiatives and unprecedented efforts to alleviate the logistics gap have instilled confidence among global investors in India’s potential to become a manufacturing hub. The prevailing world scenario has added an additional advantage to him.

Production-related incentives have already started to have an impact. The manufacturing export basket is widening. The task before us is to leverage this opportunity into a rush of investment to increase added value and employment.

And that brings us back to the land availability debate. For a country that has a higher share of arable land and a population density three times higher than China, the importance of land is paramount.

Lack of preparation on the issue can have a negative impact or serious distortion, as has been evident in the recent past.

past lessons

National unrest against land acquisition has come India’s way to make the most of the 2004-2009 growth cycle. It started in Kalinganagar in Odisha in 2005. Over the next two years, the fire engulfed almost the entire country.

Huge amounts of investment, including prized FDI, aimed at India’s poorer central and eastern states have been cancelled. Mineral-rich Jharkhand, Odisha and Chhattishgarh have lost over $100 billion in investment.

West Bengal has lost the only opportunity in the last 50 years to attract quality private investment at big prices. Automobiles, oil and chemicals, infrastructure, IT, metals, the list of projects that did not see the light of day was too long.

The nation was the final victim. Between 2010 and 2014, outward FDI from India exceeded inflows by several thousand. Obviously, even domestic investors were rushing out of the country. The trend reversed in 2015.

The greatest impact was felt in terms of regional inequality. More diversified economies in southern and western India have absorbed the shock and grown. But the economies of West Bengal, Bihar, Jharkhand and Uttar Pradesh remained stagnant, widening the income gap.

Leaving part of the country in poverty and despair will not help the Narendra Modi government’s program to build a new and strong India. The Prime Minister is aware of this and has taken several measures to reduce the gap.

The creation of a national gas network and the emphasis on multimodal logistics reduce the infrastructure gap between the East and North regions with the West and the South. However, there are not many discussions on the land.

From the perspective of the federal government, there is no policy gap between the Manmohan Singh government and the Narendra Modi government when it comes to industrialization. The center leaves it up to the states that have the constitutional right on land issues.

The success of industrialization depends on the ability of states to carry out projects. Naturally, states with an industrial culture and mature land markets will be more successful in attracting investment.

Not a perfect approach

The reverse of this policy is obvious. In 2021-2022, 65% or two-thirds of total FDI in India went to just two states: Karnataka and Maharashtra.

Industrialized Gujarat is making waves in 2022-23 by attracting mega-investments in aircraft and semiconductor manufacturing.

There is no harm if one part of the country develops faster. East China has driven China’s industrial growth. Among the differences, the land is Chinese government eminent domain and industries have moved to the east coast under both central planning and adequacy.

This is not the case in India, where land is nominally eminent domain of the state, but as a democracy the scales tip towards the masses. Add to this the lack of clarity in land records and the differences in farm size and character of land in different parts of the country – there is no homogenous land market in India.

The Manmohan Singh government attempted to improve market conditions by offering higher compensation. However, its effectiveness has yet to be tested in the absence of a new investment rush.

In the meantime, there is ample evidence to suggest that a national land market could not be created. In Odisha cartelization is a norm to extract permanent jobs from Coal India for land acquisition. In Maharashtra, people optimize land price opportunities.

This will create two problems with the same result. Tamil Nadu suffers from an abundance problem and has given up on some investments. They now want the best, ignoring national interests.

In West Bengal, where per capita income is below the national average, too many people survive on highly fragmented land. They are happy to initiate valuable investments for short-term benefits.

If the trend is not reversed, the underdeveloped states will become a handicap for the nation.

Land reuse is necessary

The time has therefore come for an innovative intervention. The need of the hour is to introduce an element of central planning without interfering too much with the federal structure. The idea is to create an enabling environment to break the politico-economic status quo.

The only option available to achieve this is to reuse the huge tracts of land available from central government organizations and enterprises, many of which are inactive or operating below their potential. Some of these assets were acquired during the nationalization phase.

Both categories have access to many fully developed land assets with easy connectivity to move industrial assets.

Take for example the SAIL factories in Durgapur (West Bengal), Bokaro (Jharkhand), Rourkela (Odisha) and Bhilai (Chhattisgarh). Leave the area under the plants alone. Each horizontally planned sprawling townships occupying a larger plot of land.

Durgapur has a township of 25,000 housing units spread over almost 40 km2. A calculation at the bottom of the envelope suggests that the township can be reduced to 1,000 odd-numbered 10-story buildings in an area of ​​barely one or two square kilometers with ample open space.

It is possible for SAIL or any other organization to convert these residential lands into manufacturing areas – with minimal support from the respective state governments – where potential investors will receive land on a plug-and-play basis.

The New Central Jute Mills on the banks of the Hooghly River in Kolkata were established by the English and later nationalized. They have access to huge tracts of unused land. What prevents the center from taking the initiative to delimit zones into industrial zones?

These are just two examples of a country, full of inherited public sector assets. Making the most of it is possible. But no such effort is yet visible.

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