What state govts can learn from de Soto and a market fundamentalist

His argument, that that has been the case across the world and one that must be implemented sooner rather than later as the developing world, including China and India, joins the universal globalisation phenomenon, is compelling. Only a small percentage of people, around 20 per cent, in developing economies (no data available for India yet) practically function under the western system of legal rights, he said. The rest of the population functions like the way people in the US and Europe used to, as close as just hundred years ago, with informal or non-legal systems of rights.

But implementing and delivering clean property titles to the poor is a far cry, a very long-term idea that will get no political hearing today, particularly in a fractured polity like India’s. The task gets further complicated when nine out of India’s 10 land titles are under legal dispute in one form or another, as a McKinsey report notes. Take de Soto’s theory a little further and you’ll probably reach a conclusion that like the sub-head of his 2000 book The Mystery of Capital, capitalism may not be able to triumph in India. While the dreamer in me disagrees, my pragmatic side tells me that in some states the bridge towards that triumph is being built in the form of lower stamp duties.

A quick look at another sector shows the positive results of lower transaction costs, unarguably one of the first steps towards efficiency and inclusion. I’m talking about the impact that finance, markets and lower transaction costs, when replicated in the property market, can deliver. As brokerage rates on share transactions fell by 92 per cent, from 2.5 per cent in 1992 to 20 basis points (that’s 0.20 per cent) today, turnover in the cash segment of the Bombay Stock Exchange rose from Rs 45,696 core to Rs 816,074 crore in 2006 (almost an 18-fold jump), the number of trades rose 20 times to over 260 million, and the average trade size rose 8.5 times to Rs 30,911.

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