Selling family silver to feed populism

The Government of Victoria, a most densely populated state in south-east Australia, adopted an interesting policy for sale of government lands. This could be a useful illustration for us.

The Victorian Government Landholding Policy and Guidelines define land as ‘surplus’ if it no longer contributes to current or future service delivery needs.

Before being listed for public sale, surplus land will be offered through a ‘first right of refusal’ process to all other Victorian government departments and agencies, as well as to local government and the Central government.

This process allows for surplus government land to be considered for community use, or for an alternative public service need, before it is released for sale in the open market

Reports of the Telangana government planning to sell government lands to garner fiscal resources to finance its flagship schemes and populist programmes have raised political hackles.

The government aims to generate over Rs 14,000 crore through land sales. Official sources reveal as many as 12,470 acres in about 1,740 land parcels have been identified in the 10 districts of the state.

The opposition is up in the arms; questions of fiscal rationality in selling public lands are being raised. While Mission Kakatiya is underway,

the water grid project is all set to take off. Welfare schemes like housing for the poor, land for the landless dalits are still at a formative phase. The KG-to-PG free education remains a non-starter.

The government employees received a handsome pay hike. All this entails a huge fiscal commitment which cannot be matched by the present revenue position.

In fact, the state government has already raised thousands of crores of debt to finance the expenditure.

Still, it could not make both ends meet as far as financing its public expenditure commitments are concerned.

Therefore, selling of government lands through auction is the only source, argues the government. The TRS government cannot be accused of selling the government lands for the first time.

But, the state government committed to reinventing Telangana could have come out with an innovative approach to monetise public lands to finance burgeoning public expenditure without alienating them.

Land is a fixed asset. It cannot be renewed. It cannot be manufactured. But, even as its supply is normative in character, the demand for public lands continues to spiral with each passing day.

The pace of development also makes it difficult to arrive at any reasonable projections of land necessity in future. The present government is only a trustee to the government land.

It’s not the owner. Even the future generations of electorate and the governments have a legitimate right to use of this land.

A trustee is expected to maintain an asset properly and productively but cannot monetise it through outright sale leading to its alienation from the public.

The outright sale of government lands also does not have any economic rationale. The cost of land continues to rise and at times even astronomically, too.

Therefore, the government has to pay an exorbitant rate in future to procure land to meet the people’s needs, though it relatively gets a pittance now.

In the last year's budget (2014-15), the government estimated Rs 6,500 crore revenue through sale of government land, but could not go ahead because of slump in the realty sector.

For the current financial year, the government has estimated a revenue of Rs 13,500 crore through land auctions and land regularisation schemes.

Assuming that even the budgeted revenue is realised, surely future governments have to incur much more expenditure to procure land when needed. The need would certainly arise as population grows and development continues.

The only difference is present government’s comfort is future governments’ burden. But, the government has its own defence. The spending on the programmes like water gird, Mission Kakatiya ,

expanding power generation constitute capital expenditure that would kick-start growth, development and generate recurring revenue. Capital assets are disposed of to finance capital expenditure, argues the government.

Though it cannot be completely brushed aside, the moot point is whether an alternative means of revenue mobilisation is not possible.

Even the Vijay Kelkar Committee on fiscal consolidation appointed by the earlier central government suggested selling of surplus government land to generate cash to ease financial pressures.

But, how to define surplus? Today the land may be in surplus. Tomorrow, with the needs raising, the land may be in deficit.

A union cabinet note prepared by the finance ministry within days of Kelkar Committee submitting its recommendations described the lands to be put on sale as non-performing assets (NPAs). But such a labeling is only to facilitate auction.

If it’s NPA for the government, how could it be a performing asset to those who purchased it in the public auction that too spending millions.

The governments have to leverage these assets. Otherwise, the government is non-performing, but not the lands.

Other than the outright sale, an alternative way of monetising surplus lands is by leasing out. But,

the cabinet note during the UPA regime said that land leases were a losing proposition since the rentals were out of sync with the market value.

Regaining possession of these lands after the expiry of lease is fraught with many litigations. This is true due to prevailing rent seeking political culture.

The governments often enter into bankrupt and self-defeating lease agreements due to underhand dealings.

Such a primitive accumulation can be checked through a transparent mechanism of lease agreements.

Suitable legal enactments can prevent litigation. For instance, the Vijay Kelkar Committee suggested that the rental be fixed on the basis of an elaborate criteria based on market value of land and the expected appreciation.

The more productive method would be bringing all the government lands under a land bank. Even private parties can also deposit their lands with this land bank.

Commercial assets can be developed on these lands through a special purpose vehicle (SPV). Optimal and recurring revenue can accrue from an enterprise without alienating lands to private parties.

An outright sale of government lands is tantamount to killing the goose that lays golden eggs.

Despite all this, if the government prefers outright sale to alternative means of monetisation, at least the market value should be properly assessed.

Experts suggest that market value should be based on floor area ratio, presence of utilities, development potential, availability of minerals around the site etc.

The government departments can also be asked to boost the land’s market rate by value addition.

For example, a public utility could be developed near the land to be auctioned to substantially increase the market price of the land put on sale.

Systems should also be in place to give the government a share of any increase in the value of land due to changes in land use at a later date.

The Ashok Chawla Committee on allocation of natural resources has recommended a transparent and rational framework for management and allocation of government land, including through sale, leases and public-private partnerships.

The committee found that the land sector was “characterised by apparent non-transparency and subjectivity in disposal policy of the land assets.”

But, the public-private partnerships are being reduced to private appropriation of public resources, thanks to crony capitalism.

The Vijay Kelkar Committee said, “Yet another policy instrument for raising resources for development and that is monetising government’s unutilised and under-utilised land resources.

These resources can finance infrastructure needs particularly in urban areas. Such a policy has been effectively utilised in many countries including US, France, Canada, Australia and China.

For monetising land resources, the potential is considerable given the under-utilised prime lands. “But, monetising need not necessarily mean alienation of lands.

The government often cites obnoxious reasons to defend the policy of outright sale. Even the Ashok Chawla committee said that these land parcels face the threat of illegal occupation, land grabbing, encroachment and permanent alienation.

It stressed the need to frame a transparent mechanism for their management and sale. The State which cannot prevail over those who break the law and loot public resources cannot alienate them permanently.

The Odisha government’s Comprehensive Development Plan (CDP) and implementation policy links the plans to auction government lands with the urban development plans.

Instead of selling to anyone and everyone who pays for the auction price, the sale can at least be calibrated to the city development plans.

The Government of Victoria, a most densely populated state in south-east Australia, adopted an interesting policy for sale of government lands. This could be a useful illustration for us.

The Victorian Government Landholding Policy and Guidelines define land as ‘surplus’ if it no longer contributes to current or future service delivery needs.

Before being listed for public sale, surplus land will be offered through a ‘first right of refusal’ process to all other Victorian government departments and agencies, as well as to local government and the Central government.

This process allows for surplus government land to be considered for community use, or for an alternative public service need, before it is released for sale in the open market.

Editor: Prof K Nageshwar