Delhi and Mumbai: What unites them is their land scams

Land is the currency of most political and business scams. This is where the anti-corruption movement must focus first.

R Jagannathan October 22, 2011 19:18:48 IST
Delhi and Mumbai: What unites them is their land scams

If there is only one thing you can do to reduce egregious corruption, what should that one act be?

The answer is land: take away discretionary powers over land supplies and make land deals completely transparent, and big-ticket "episodic" corruption will come down by 50 percent.

A casual look at any day's newspaper headlines will tell you why land is the main currency of political and business corruption. Despite having completely different political cultures, Delhi and Mumbai are tied together in land scamming.

Delhi as metaphor for politics and Mumbai as metaphor for business make for an unbeatable combo in corruption. This is where we must focus our initial anti-corruption efforts.

On Saturday, 22 October, all newspapers reported that the Allahabad High Court had cancelled three land allotments in Greater Noida near Delhi and ordered higher compensation in several other cases. As Firstpost reported earlier, there is a strong possibility that many of the allotments involved hanky-panky. One of the top stories in Mumbai's DNA newspaper says that the TDR lobby made nearly Rs 1,000 crore before the state government increased the floor-space index (FSI) for the city's suburbs.

Reason: they knew all about it beforehand. They knew that a hike in the FSI from 1 to 1.33 in Mumbai's suburbs would lower the prices of transfer of development rights (TDRs) because demand for TDRs would fall after the announcement. (FSI can be bought or sold through the TDRs).

Delhi and Mumbai What unites them is their land scams

The time is right to break the nexus between politicians, businessmen and the land mafia. AFP Photo

According to DNA, "DB Realty, HDIL, Sumer Corporation and RNA sold off at least 80 percent of the TDR in their possession before Chief Minister Prithviraj Chavan announced a 1.33 FSI for the suburbs" last Thursday.

Sure, there's nothing illegal in buying or selling TDR. But the crucial question is: did they know FSI was going to be raised in Mumbai's suburbs, and when that would happen?

There's enough of a whiff of a scam for at least a probe.

The moot question: why is land so closely linked to dirty money and corruption, and what can be done about it?Anything scarce is valuable. Land, like spectrum, is scarce. Hence it is no surprise that people want more of it. But there is one difference between land and spectrum: there is an absolute limit on the amount of spectrum available. So one knows what one should do with it: auction it transparently. Andimuthu Raja is in jail because he didn't do that. India's land sharks should be the next in line. Where land differs from spectrum is in this: there is no such thing as absolute scarcity. There is enough of it available, if one tries: FSI can be raised, properties can be redeveloped, land can be reclaimed from the sea (like Mumbai and Singapore did), and availability of fast public transport can extend land availability outside cities and metros.FSI is a way of raising land availability by allowing a more vertical expansion of cities – and this is the reason why politicians want to control it. Without this control, land would be subject to the same laws of demand and supply as any other resource, and would be a risky asset to hold for long periods of time.Mumbai is a case in point – and we can prove the point circumstantially that land prices are being held up artificially.

The state scrapped the Urban Land Ceiling Act in 2007. The immediate assumption was that all the land bottled up by the Act would come into the market and reduce realty prices. Nothing of the kind happened. In fact, between 2007 and 2011, property prices in Mumbai rose 50-100 percent in many areas. Likely cause: between them, politicians and builders are allowing land to come into the market only in trickles.

The case of additional FSI in Mumbai's suburbs is also instructive. The announcement on raising FSI was announced as far back as 2008 – but builders who would have been affected by it went to court to stall the development. Only when property inventories were down – around six months ago – did it become clear that the higher FSI proposal would go through.

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It is precisely in these six months that builders offloaded their excess TDR. The DNA report says

DB Realty pared its 1.23 lakh sq metres TDR earlier this year to 37,475 sq m. HDIL, one of the city's biggest slum redevelopers, brought it down from 1.46 lakh sq m to 32,799 sq m. The TDR rates have fallen from around Rs 3,500-4,000 some months ago to Rs 2,800-3,000 after the chief minister announced the FSI hike.

Quite obviously, land is the ultimate cash cow for politicians and businessmen. This is why they want to have land in their portfolios. The Rajus of Satyam defrauded the software company to get into real estate. Almost all of India’s textile tycoons — Birlas, Mafatlals, Wadias, etc — are realty buffs today. Sunil Mittal, who made his money in telecom, is getting into real estate. Every company claiming to build infrastructure is essentially a land lubber.

Raghuram Rajan, a former chief economist with the World Bank, makes the same point. He told DNA in an interview: "The predominant sources of mega wealth in India today are not the software billionaires who have made money the hard way by being competitive in a global economy. It is the guys who have access to natural resources or to land or to particular infrastructure permits or licences. In other words, proximity to the government seems to be a big source of wealth."

Gautam Chikermane, writing in the Hindustan Times, notes that rent-seeking behaviour is common to all developing economies. He quotes Harvard academic Dani Rodrik as saying: "Show me a country that has never had rent seeking and I'll show you a country that has never developed. This was how the west developed. The successful countries are ones that are able to channel the rents in a productive way."

India is at that stage in development where this shift needs to take place. The time is right to break the nexus between politicians, businessmen and the land mafia. Anna, why don't you make land deals a key focus of your anti-corruption crusade?

Updated Date:

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