Forbidden lands and the Indian Budget: Part I

As the day of reckoning comes closer (despite the RBI Guv graciously saying that he’ll not sit in judgement of the budget), there are those usual signs of madness. The markets have dipped a bit (the lull before the storm) and are swaying to every comment, letter, comma and breaths between two words as uttered from North Block. Industrialists have started on their annual Haj pilgrimage to the corridors of Delhi, hoping that just the very miracle that they wanted could happen on the budget. The media is doing its bit, educating the already educated about what the fiscal deficit means and how it is so very different from the revenue deficit; the poor, uninitiated Muggles (the types who have never held the magical ET in their hands), god bless them, are anyways only worried about whether LPG will become more expensive or not. And then, the ringmasters of this circus. The analyst firms. Even in the most mundane of circumstances, no one can quite figure out what the buggers are trying to say. “The markets, which are factoring in the 50 bps cut in SLR can now leverage the competence of the new Government team, says Chief Analyst, TAC. 100 bps is equal to 1 percentage point”. (Oh, and by the way, TAC is Technical Advisory Committee…didn’t you know? How uncouth of you!) The only damn thing one can understand is that 25 bps = 0.25% and we already know that….so what the hell was that thing about leveraging the competence…grrrrr!

I, however, maybe by force of habit, enjoy the hoopla, the discussions, the gossip that happens during these times. I enjoy the heightened sensitivity of the paan- eating mantris to angrez words like fiscal discipline, the wish-I-was-the-FM look on erstwhile FMs; but mostly, I enjoy trying to predict what the direction of the policy could be. A quick…(or maybe not that quick) take on a few issues.

Firstly, this is the first full scale budget of Modi Sarkar and hence crucial in terms of setting a direction and a pace into the next 3-4 years. So it HAS to be a well thought of exercise. The GFCF as a percentage of GDP has fallen rather drastically from around 37% to 31% in the past 5 years and while it seems that this trend has bottomed out, it goes without saying that we will take at least a couple of years to get the investment levels back. A direct proof lies in the fact that the actual bank holding of eligible Government securities lies in much excess of the erst-while SLR limit of 22%, indicating that the credit to the private sector is not really ticking. Now, in these 2-3 years, the growth will have to be led by the Government spending more, and that too, on infrastructure. With inflation under control, there is more fiscal room too and hence it seems that a fiscal deficit of around 4.5% (yes, you read that right. I have never quite understood the point in having penalizingly low fiscal deficits; they are after all growth harbingers. I would much rather that the quality of the deficit be controlled. In fact, even a 5% fiscal deficit could be tolerated in FY16, provided we manage its quality) combined with a revenue account deficit of less than 1.5% should augur well.

A large, and I mean, COLOSSAL, chunk of this fiscal deficit has to be dedicated towards critical infrastructure spending. Union Budget FY15 spoke about infrastructure thrusts such as building smart cities (an outlay of Rs.7000 crores was earmarked for this), industrial corridors, irrigation and solar power. Now, for this entire infrastructure, we need basically…land. My argument is that the interim exercise for FY15 was a lot easier because it spoke about the kind of vision that the Modi sarkar had in mind for an industrial India. Union Budget FY16 will be a tough cookie because now the FM will have to really lay down on paper the nuts and bolts of the vision. And the first crucial issue that has to be addressed is land.

Questa terra è mia….

Land. Reddish brown or yellowish in color, black in money and white on paper, the greyest of all assets, causing blues in the mind. Do we really have the land to create those smart cities and corridors? And do we have a smooth process of acquiring it?

Consider the data. CMIE data suggests that around 100-odd infrastructure projects, worth around Rs.4,50,000 crore are pending clearances owing to land acquisition issues. Of these, about 30% are Government projects but a larger chunk is either in private hands or is a PPP format.

The initial to the point of being primitive act that governed acquisition of land till 2013 was the Land Acquisition Act (LAA), 1894. This Act was basically created so that the Government could acquire huge tracts of land for “public purposes”. The basic problem was that the Act forgets, errr, how clumsy of me, sorry, omits mentioning what exactly constitutes a “public purpose”. Now, in its spirit, what it obviously meant was that when land was required for schemes such as building roads, bridges or irrigation or water management systems, the same could be acquired from the land owners by the Government quickly. However, in not mandating an impact assessment and by not so much as looking into the closely related issue of the welfare of the displaced persons, the Act rendered itself extremely partial to the interests of the Government or whatever could be allowed under the scope of “public purpose.” So, the idea was that the LAA would speak of only land acquisition; for protecting the interests of displaced people, you would have to read yet another act. Now, you know that it wouldn’t take very vibrant imagination to prove that a particular project was oh-so-vital for public welfare. Under the aegis of this Act then, the land owners were subjected to the mercy of the State Governments that could pretty much source land from them arbitrarily.

In recent times, the provisions of the act really came under close public scrutiny when the SEZ controversy began in India in 2005, after the SEZ Act was passed. The SEZ Act, which suggested that an SEZ could be set up by a private party, or a public body, or through PPP, remained wonderfully silent on how the land was to be acquired for the purpose of the SEZ. Obviously, the SEZ act is a Central act and land is a state subject and so it could not possibly give a commentary on how the land for the project was to be sourced. Now, there were several PPPs that were set up with a State Government entity as the sourcing partner, in which the land would be sourced by the Government for the SEZ, a “public purpose” (Surely you are not challenging that! How very Marxist of you!) and would be developed by the private parties into an SEZ. The root of the controversy was the definition of what really constitutes a public purpose and absolutely alienated farmers, who lost land for this public purpose after which, in some cases, the project was shelved. This implied that agricultural land, at times, the only asset of the farming families, was acquired for a project that never took off. Of course, it is not that only agricultural land was sourced. In fact, the Commerce Ministry made sure to shout from rooftops that hardly 1% of the land sourced was agricultural. In the meanwhile, the monsoons failed and the food inflation episode started in India. Now, this sign of heartlessness from the rain gods prompted the pro-farm activists to stake a claim that reduction in the area under agriculture has prompted the food prices to go up in the country.

You can see how mad it gets.

In the last leg of the UPA Government and probably as a last ditch attempt to gain acceptability amongst the farming community, the Land Acquisition Act was….revised! The revisions, again in the spirit, now attempted to shift the balance of power from the Government to the land owners. The Act firstly defined which projects could be labelled as those useful for “public purposes” and further mandated a “Social Impact Assessment (SIA)” as well as linked the results of the assessment to the resettlement and rehabilitation of the displaced people. Is this a good or a bad move? Now this is where things start becoming interesting….

In the next blog (in  couple of days time): Did the UPA II do a good thing by revising the LAA? And why has the Modi Government re-revised the Act, and that too through an Ordinance, for heaven’s sake? What is the implication of this Ordinance for the Budget?

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