Wanted: An Upgraded Land Policy To Aid Investment Flow

The Indian economy has hit its sweetest growth spot in over a decade that too in the middle of a global slowdown. From $24.7 billion in 2014, foreign direct investment (FDI) in India increased steadily to $50 billion in 2019 and closed a tad below $60 billion in 2021. 

The stock market kept steady despite the consistent rate hikes by the US fed triggering the outflow of the dollar from the emerging markets. Renewed interest in manufacturing might prove a game changer. 

The series of reforms, aggressive policy initiatives and unprecedented push to mitigate the logistics gap have instilled confidence among global investors about India’s potential to be a manufacturing hub. The prevailing global scenario added an extra edge to it. 

The production-linked incentives have already started making an impact. The manufacturing export basket is getting widened. The task ahead is to optimize this opportunity into an investment rush to increase value addition and employment. 

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

Lack of readiness on the issue may have a serious negative or distortionary impact as was evident in the recent past. 

Past lessons

The nationwide agitation against land acquisition came on India’s way to make the best of the 2004-2009 growth cycle. It started at Kalinganagar in Odisha in 2005. Over the next two years, the fire engulfed almost the entire country. 

Huge amounts of investment, including prized FDI, headed for the poorer central and eastern Indian states, were called off. Mineral-rich Jharkhand, Odisha and Chhattishgarh lost over $100 billion in investments. 

West Bengal lost the only opportunity in the last 50 years to attract quality big-ticket private investments. Automobiles, petroleum and chemicals, infrastructure, IT, metals – the list of projects which didn’t see the light of the day was too long. 

The nation was the end sufferer. Between 2010 and 2014, India’s outward FDI outstripped the inflow by miles. Clearly, even the domestic investors were rushing out of the country. The trend was reversed in 2015. 

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

Leaving a section of the country in poverty and desperation will not help the Narendra Modi government’s agenda of building a new and strong India. The Prime Minister is aware of that and has been taking several steps to mitigate the gap. 

The creation of a national gas grid and focus on multi-modal logistics are reducing the infrastructure gap between the eastern and northern regions with the West and South. However, there is not much discussion on land. 

From the perspective of the federal government, there is no policy deviation between the Manmohan Singh and the Narendra Modi government on industrialisation. The centre is leaving it to the states who have the constitutional right over the land issues. 

The success of industrialisation depends on the ability of the states in steering the projects through. Naturally, the states which have a culture for industry and have matured land markets will be more successful in attracting investment. 

Not a perfect approach

The flip side of this policy is evident. In 2021-22, 65 per cent or two-thirds of the total FDI in India went to only two states: Karnataka and Maharashtra.

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

There is no harm if a part of the country develops faster. Eastern China fired the industrial growth of China. Among the differences, the land is an eminent domain of the Chinese government and industries went to the coastal east as part of both central planning and suitability. 

That’s not the case in India, where land is theoretically an eminent domain of the state, but as a democracy, the balance is tilted to the masses. Add to that the lack of clarity in land records and, differences in holding sizes and character of the land in different parts of the country – there is no homogenous land market in India. 

The Manmohan Singh government tried to improve market conditions by offering higher compensation. However, its efficacy was not yet tested in the absence of another investment rush. 

Meanwhile, there is ample evidence to suggest that a nationwide land market couldn’t be created. In Odisha, cartelisation is a norm to extract permanent jobs from Coal India for land acquisition. In Maharashtra people optimise land price opportunities. 

This will create two problems with the identical outcome. Tamil Nadu is suffering from a problem of plenty and has shooed away a few investments. They now want the choicest, ignoring the 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 kick out prized investments for short-term benefits. 

If the trend is not reversed, the underdeveloped states will become a liability to the nation. 

Reusing land is necessary

The time is, therefore, ripe for an innovative intervention. The need of the hour is to bring in an element of central planning without much interference to the federal structure. The idea is to create an enabling environment to break the political-economic status quo. 

The only available option to do this is by reusing the huge tracts of land available with central government organisations and undertakings, many of which are idling or operating at below potential. Some of these assets were acquired during the nationalisation phase. 

Both categories have access to abundant fully-developed land assets with easy connectivity to move industrial goods. 

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

Durgapur has a township of 25,000 dwelling units spread over nearly 40 square km. A back-of-the-envelope calculation suggests the township can be shrunk to 1000 odd 10-storied buildings in barely one or two square km area with ample open space. 

It is doable for SAIL or any other organisation to convert this residential land into manufacturing zones – with minimum support from the respective state governments - where prospective investors will be provided with land on a plug-and-play basis. 

The New Central Jute Mills on the banks of the river Hooghly in Kolkata was set up by the English and were later nationalised. They have access to huge tracts of unutilised land. What stops the centre from taking an initiative in curving out areas for industrial zones? 

These are just two examples of a country, full of legacy assets under the government sector. Making the best use of them is possible. But no such effort is visible as yet.