Freeing land-locked India: Can surplus lands’ economic value be captured to finance infra investment?

A World Bank report states decentralised government agencies do not follow agreed-upon guidelines for land use!

By Ramji S Krishnan

Government entities hold large tracts of valuable public land which lie vacant/underutilised, stalling efficient urban infrastructure development. Can surplus lands’ economic value be captured to finance infrastructure investment? How do we formulate transparent and efficient government policies toward public land management?

Thirteen major port trusts hold 100,000 hectares of land. The Airports Authority of India holds 20,400 hectares surrounding major airports. The ministry of defence and Indian Railways have as surplus 283,000 ha and 43,000 hectares, respectively. Waqf Board has 240,000 hectares land. Public entities are reluctant to surrender their surplus. Furthermore, the governance system for managing public lands does not treat them as valuable assets.

To paraphrase Churchill, public lands management and divestiture, is a riddle, wrapped in a mystery, inside an enigma! Valuing public lands is a difficult task due to the lack of public information on holdings/leases and competitive market pricing mechanism. However, in 2012, Bandra (East) Mumbai, railway land reserve price was $160 m/ha and NTC lands were sold for $70m/ha. It is safe to assume that all public holdings of all government agencies are possibly worth over a few hundred billion USD!

Major Port Trusts Act 1963, empowers ports to lease out land for a period up to 30 years and for longer periods; the central government’s prior approval is necessary. Land Policy (2014) mandates resources are put to optimal use with a focus on retaining/attracting port traffic and ensure the realisation of value by licensing/leasing portland through a transparent tender-cum auction.

A World Bank report states decentralised government agencies do not follow agreed-upon guidelines for land use! Lack of transparency aids shady dealings and hinders efforts to realise full economic value. At the Deendayal Port Trust, saltpan lands were leased at a pittance. Larger manufacturers were charged one-third the rate charged to smaller players! Adarsh Housing case metamorphosed into a scam, from a building for war veterans/widows, into a condominium for the undeserving. Major corporates and government entities lease land from Mumbai Port Trust (MbPT) at vastly below-market rates and/or operate under expired leases.

Leases are often renewed without inviting tenders. And in case of hikes, the landlord is unceremoniously dragged to court. A Supreme Court judgment held that the land rents of MbPT commercial properties—not used for port purposes—to be increased to 6% of land value, effective from 2004. Most of the lessees refused to pay up!

Scandals are followed by knee-jerk policy reforms, with referrals to the Cabinet for approvals, slowing down implementation. Lack of transparent reporting makes it difficult to ascertain the efficacy of reforms on long-term systemic improvements. The only ways to get information are PIL or RTI!

As the cost of holding onto land is very small, government/religious bodies have little incentive for appropriate usage. Defence golf courses cover 3,270 hectares of urban land! Government bodies have very little real estate, SEZ/development, and private public partnerships (PPP) skills, as their core competency is very different. A PIL revealed MbPT had not pursued rent increases for non-port users’ lease agreements. Latest data (2015) on MbPT website states lease arrears are over Rs 1,076 crore (ca $150 mn)!

Despite MbPT’s inability to charge/collect lease rent, it was appointed as a special planning authority under the MR&TP Act, 1966. However, the entire Act does not even mention MbPT, which holds one-sixth of the island city’s land! MbPT is expected to develop the land for waterfront activities, re-settlements, and exploit its commercial potential. Of the total planning area (966.30 ha), only 16% is needed for port-related activities! The block cost estimate for this development is over Rs 6,500 crore (ca $900 mn). However, recovery will begin at a much later stage. More importantly, MbPT has projected no revenues!

Government agencies, contributing land as a share of PPP with pre-selected private partners, would be without transparent pricing or a competitive evaluation of partner’s technical capability. Central government policies should give weightage to the opportunity/economic losses caused by vacant/underutilised land. Failure to obtain market rents should be a reason for divestiture.

Internationally, (eg: Germany’s Liegenschaftsfonds), successful utilisation of public lands is achieved through one strong centralised government agency, with a mandate to identify/redeploy excess lands under various decentralised agencies. They operate transparently, are not politicised, and the public/potential purchasers can inspect land inventories. The staff are real estate professionals and are not subject to transfer threats. They negotiate zoning and density permits, thereby capturing the value for the government. Developers undertake development and bear project execution risks.

India needs to create a specialised and centralised public land development agency. A comprehensive and consistent audit is needed of all government agencies’ surplus lands. Market competition, corruption-free environment, and deployment of urban development, legal/finance and SEZ/PPP professionals—not civil servants, with a mandate to generate value, can create a substantial surplus. Inter-generational and intra-generational equity can be achieved through sustainable development by meeting the needs of the present without compromising the future. A specialised/centralised land development agency can maximise revenue, channelise it as equity contributions to PPPs, re-settle slum dwellers, and support communities. This can sustain the present/future welfare and avoid ‘white elephant’ projects.

What is at stake is the potential revenue worth a few hundred billion USD. Ballooning fiscal deficits, a government desperate for cash, and a looming ratings downgrade are threatening to unwind the economy. It is time we put these lands to good use.

The author is Sloan Fellow, London Business School. Views are personal