CAG report shows UP gave undue benefits to developers

If it were made clear at the start that the government wouldn’t be charging conversion fee, other developers perhaps could have put in a lower bid, in a fair competition. (Representative image)

Real estate developers in Uttar Pradesh (UP) got an undue benefit of Rs 572.48 crore when the state government didn’t levy conversion charge (for the conversion of agricultural land into residential land), as per a recent CAG report. The UP government, after initially saying that the conversion charges needed to be paid by developers for agricultural land earmarked for use for residential development in Ghaziabad under the Hi-tech Township Policy, changed stance in 2010—on request of the developers, the CAG report notes—and designated the land as residential under the Master Plan 2021 for Ghaziabad. This was despite the MoU between the developers and the Ghaziabad Development Authority making it clear that the developers had to pay conversion charges as applicable for agricultural land being used for residential development. Worse, when one arm of the state legal department flagged this as a “post-bid benefit”—which means the playing field was retrospectively queered in favour of the developers—this opinion was overruled by the principal secretary, legal department. While the audit period is from 2005-06 to 2017-18, and the timeline of the change in stance that allowed developers windfall gains would indict the Samajwadi Party government under Akhilesh Yadav, the current government, as the CAG notes, hasn’t informed the central auditor about any plan to recover the amount or otherwise initiate action. Indeed, the urban development authorities of some of the major cities in the state seem to have been instruments of disbursing favours to real estate developers, by letting the latter sidestep regulatory and other requirements.

Call it crony capitalism or socialism—after all, the aim of the Township Policy, etc was to facilitate planned development of residential colonies to tackle housing shortage—the CAG’s audit shows that as long as there is an attempt to over-regulate, with the resulting, unavoidable contradictions between two regulatory aspects and, in turn, lack of policy stability, there will be ample room for such graft. If it were made clear at the start that the government wouldn’t be charging conversion fee, other developers perhaps could have put in a lower bid, in a fair competition. Whether or not conversion charges were payable seems to have been caught between a clutch of UP government orders regarding land-use conversion, the Township Policy (its three iterations talked about in the CAG report) and the MasterPlan 2021. If there had been clarity as well as policy certainty, the room for seemingly arbitrary shifts in the government’s position in the matter wouldn’t have been likely. Governments across levels, especially those politically committed to taking on graft and curbing cronyism of any kind, would need to keep in mind that the loopholes created by regulation—especially where there is over-regulation—are breeding grounds for corruption.