Opinion After the fact
The Centre just does not have a grip on issues of land and inflation.
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A potent mix of high inflation and land conflicts is haunting Indian politics. Most of the intellectual and political energy is being expended on what we do after the problem has acquired disconcerting proportions. There is relatively little discussion on how we could prevent the problem from acquiring such momentum in the first place. Behind the facade of technical arguments over the trade-off between inflation and unemployment,or compensation levels for land acquisition,there is a familiar but ugly truth: both problems originate in massive governance failures. And both problems are now irrevocably interlinked.
The UPA has been unconscionably blase about inflation. It has used every single argument to explain away inflation,from global prices to the weather. Some of these are contributing factors. Monetary and fiscal policies have their own role to play. But inflation is as much about expectations as anything else. In a curious way,both the government and the RBI have been consistently sending mixed messages on inflation. The prime ministers refrain that there is a trade-off between fighting inflation and employment sounds more like a post facto creation of an alibi than a determined signal to quench inflationary expectations. For a while,the issue was food prices. But it is now clear that inflation is broader-based. The ugly truth is that Indian inflation is as much governance-induced as anything.
How? When inflation is persistently high there is good reason to believe that there are significant supply bottlenecks in meeting increased demand. So the question is: what is it about the Indian economy that is making it difficult to generate supply responses to increased demand? In certain areas of agriculture there are long-term issues around productivity. There is simply no excuse why these issues should not have been addressed seven years into the UPA. But the supply of every single input cost,from energy to services,from land to credit for small businesses,seems to be alarmingly high. Each of these input costs can be directly linked to governance failures. Proper regulation is needed in many areas. But the form in which regulation is administered at so many levels of government is exacting a huge toll on the ability to create supply responses. There is no getting around the fact that unless you fix governance in the small,the supply bottlenecks will remain a structural feature,as they have been for more than three years now. Sophistry is providing an alibi for governance failures.
It is possible that we havent got the foggiest idea of how complicated things on the ground are. Take an example. According to some recent reports,rural wage rates have increased by as much as 40 per cent over the last two years. This would be a cause of celebration,if we could be sure that this was translating entirely into welfare gains on the one hand; and not distorting labour markets in a self-defeating way on the other. We dont know whether either claim is true. There may be a danger that rural wages and inflation are now in a vicious cycle,each exerting pressure on the other. As for labour shortage,it is not entirely clear what the story is. Demand expansion? Skill matching bottlenecks? Changing migration patterns? Changing employment preferences? The disquieting thought is that we dont have a way of determining these linkages. The analytical debate is so focused on aggregate numbers,or particular issues,that there is very little systematic understanding of the linkages is now a source of stickiness. The distinguished political scientist Sidney Verba used to joke that most social science was about replacing strong intuition with tenuous correlation. Relying on either has its dangers. In addition,a lot of data is backward looking. It tells you yesterdays story,not emerging linkages. But it has been easy to use conjectures artfully to deflect the blame from governance.
This is where the land story comes in. A previous column (August 19,2010) raised the political economy issue around land. If anything,we underestimated the challenges. In a state like Gujarat,half of the port projects are stalled because of land-related issues. But arguably land is linked to inflation more than we recognise. Asset prices can drive inflation. But the cost of land,and issues around zoning,are driving up pretty much the price of every single service. This is true of big and small business. Indias great advantage as an economy,as Partha Mukhopadhyay had pointed out,was that it was easy to enter it at different price points. But the combined cost of land,energy and regulation may be creating a hitherto unprecedented stickiness. This may pose a real structural challenge for us. There has got to be some link between the fact that the monthly payout for a small paan hawker in a place like Gurgaon is upwards of Rs 10,000 a month just for space and the cost of services and the fact that fewer people seem to be accessing cities according to 2011 census. So land may be more than just about farmer conflicts.
But here is the worry about the land debate. The Land Acquisition Bill will probably be passed. The Congress will do it in typical fashion. First,decimate property rights that could have been used to protect the poor,then build up a crisis,then step in with a palliative. The bill will,if well drafted,help create fairness and transparency in compensation. But it will not solve all the principle land issues. It will solve the fairness issue. But whether it will solve the shortage or zoning issues is still an open question. Some land acquisition is location-specific. Land-acquisition problems are a product of the fact that the entire ecosystem for land planning is mismanaged. The mismanagement is of two sorts. One is misallocation of resources we already possess. Just fixing this problem would reduce the need to acquire land. This is not a simple matter of a McKinsey-style mantra of unlocking land values; those formulas are largely real-estate deals,they have no sense what good land planning requires for efficient,liveable cities that are also hubs of low-cost economic activity. The second is that all our governance structures,whether it is coordination of transport strategies,or whether it is designation of zoning,militate against intelligent land planning.
Mamata Banerjee was right when she said recently that there are scientific solutions to the land question. Conflicts are avoidable. But not if the obfuscations we have seen on inflation and land are repeated. Governance has become post facto hand-wringing,rather than ex ante application of intelligence.
The writer is president,Centre for Policy Research,Delhi
express@expressindia.com
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