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How much would you pay for my land Sir!

"A vast consumer market, huge natural resources and a comparatively low cost labour in India attract industries and investors to the country. In the recent years, investors and corporate houses interested in mineral based industries, commercial and residential housing, service sector industries have announced huge investment for their projects in different states of India. And, India is also extending them adequate support to set their projects. But the major obstruction in case of most of the large projects has been land acquisition. This is because in almost all cases governments at the states commit for land without a proper survey and valuation. And, the corporate also do not include land as a primary component while deciding the project cost. As a result, land is being grabbed at the cheapest price and land losers are not getting the benefit they desire and deserve to. As projects require land proportionate to the cost of their project, a fixed percentage of the project cost must be spent on land acquisition. So, instead of promising land at a throwaway price, the governments must ensure the best price to people against their land."

Dr. Prasanna Mishra : April 6, 2010

A consortium of Bhushan Steel, Subhash Chandra’s Essel Group and Industrial Development Corporation of Maharashtra (Cidco) reportedly won recently a land deal in respect of a 250-acre plot in  Navi Mumbai for Rs 1530 crore. This development is an indicator that high-value land deals are back again. This is stated to be the biggest land deal in Mumbai in the past 18 months. Cost of the land is over Rs 50 crore per acre. Government agencies like the Railway Land Authority (RLDA), National Textile Corporation (NTC) and Mumbai Metropolitan Region Development Authority (MMRDA) are planning to auction their land this year. Last year they had faced an unfavourable market. Upsurge in demand for commercial land seems to be due to rise in home sales. Developers are now willing to pay higher prices and buy land. Most land buyers in Mumbai are planning to build premium residential apartments to make the most of their expensive investments. DLF, the country’s largest developer, recently changed its plans to build an office-cum-retail complex into a high-end residential complex in Lower Parel because commercial rents have fallen sharply. Appetite of the affluent section of the society, which includes NRIs for premium residential units has been pushing land price in major urban conglomerations.  

Allowing foreign universities to set up their campuses in India would also have its impact on land price. Over 500,000 students go overseas in a year for education, including professional courses in engineering, medical and management. They cost the country a foreign exchange outflow of around $10 billion annually. If there were campuses of foreign universities in India at least three-fourths of students would prefer not to leave the country. Some niche developers like HCC and SEZ Sri City see opportunity in this situation. They are roping in big institutions in their developments. HCC, which is developing a township called Lavasa near Pune, has roped in Oxford University and Ecole Hoteliere, a premier Swiss hotel management school. Sri City, a SEZ 65 km northwest of Chennai, across the border with Andhra Pradesh, is also trying to rope in big names. Once you have a famous foreign institution, you could leverage it to attract others and sell them office, residential, and retail space. Sri City, with over 5,000 acres, is stressing on education as a driver to attract manufacturing units. It is hoping to leverage Chennai’s position as a manufacturing hub.

Back home we also witness skyrocketing of land price in Bhubaneswar. Limited availability of land with government has been helping this trend. Government have been soft towards unauthorised occupation of government land and this has helped spread of slums. The situation in other urban centres of the state is still worse. A person in the middle income group planning to build a reasonably decent house within, say, Rs 25 lakh could spend now as high as 25% of this amount on a small piece of land in most of the towns of Orissa. In case of Bhubaneswar, the position would be still worse.

While land price is showing sharp upward movement, new promoters of industries have been facing problem in getting land in Orissa for their green-field projects. One needs to look at the situation with an open mind .The present situation prompts me to correlate the cost of land with the cost of the intended project thereon. Suppose a mega project of say Rs. 20,000 crore would need 2000 acres of land. We should consider how much the land price should be. Why should the owners of the land be asked to part with the 2000 acres at the rate of say Rs 10 lakh per acre? At this rate the industry gets all the land it needs at only Rs 200 crore. This works out to just one percent of the cost of project. Is it fair for the owner of the land? Owners of the land would expect more. We should not brush aside their feelings.

The price of land, like many other things in our free economy should be market driven. There is a case for substantial rise of land price for industries in Orissa. A rate of Rs 50 lakh per acre at the present state of our economy would appear equitable. At this rate, the cost of 2000 acres of land for the mega project I have cited as an example would be Rs 1000 crore which works out to only 5% of the cost of the project. This cannot be viewed as unreasonable. Such an approach need not be viewed as one that would scare away new industries; rather local population would view industrialisation as a harbinger of equity and prosperity.

(Author is a retired IAS Officer and former Secretary to Government of India)

 

 

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