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Instead of getting businesses first, and leaving infrastructure development to chance, the State can acquire the land at a reasonable price and stipulate to real-estate developers how they should build on it.

Barack Obama is evidently what the Americans wanted but for some Indians that is also a matter for unease. Quite a few Indians are worried about the possibility of his curtailing visas for Indians and other foreigners; there are others who are anxious about his views on the Indo-Pakistan conflict.

The day his victory was announced, India’s Sensex (as also markets world over) declined 5 per cent and more. To make matters worse, the Prime Minister has expressed his worry that India is at the risk of suffering a depression. Ashok Leyland and Tata Motors have actually announced reduction in the number of days their works will operate.

India’s boom in recent years has been due mainly on three counts: Outsourcing by US companies, large demand for raw materials from China and also relatively low oil prices. Oil prices have shot up; post-Olympics, Chinese demands have fallen drastically and if Obama were to cut H1B visas, India will have several serious problems to contend with.

Further, our banks have been relatively liberal in lending. The SBI Chairman has already warned that our banks are likely to face increasing number of bad loans. Economists are thinking along conventional lines such as lower bank rate and better fiscal prudence. Instead, suppose we organise to get a larger output with the same amount of money. Then, we will get both increased output and reduced prices.

On the other hand, when we stimulate demand by reducing interest rates, output does increase but at the cost of increased price. That is why it is more important to cut production costs than to stimulate demand by cutting interest rates.

India’s poverty is the result of concentrating mainly on enlarging larger cities where prices are high. Alternately, it has attempted special economic zones (SEZs), which too are not going smoothly. According to one expert, there are 180 of them that are having some problem or the other.

Businesses do not prosper without good infrastructure — education, healthcare, roads, water, electricity, sanitation and the like. It is the responsibility of the government to produce such infrastructure. That is exactly where our governments have failed. India is still a country where most people live in villages, in small habitations.

Our villages are too small for the present condition of the world economy. For that reason, the government has concentrated its investment in cities. It could have, instead, gone to a cluster of villagers and offered them schools, roads, transport, healthcare and the like in return for space to build them and for business houses to develop export incomes to sustain all those investments. Instead, they have acquired chunks of land at relatively low rates and given it away to businesses at much higher prices and with next to no commitment to develop villages. To be truthful, that system has not worked.

In my opinion, SEZs suffer from two fundamental mistakes. One, they try to get as much land as possible in one piece; they should have tried to get chunks of low-value lands wherever they are available within a space of about 10 km across. Two, SEZs have concentrated on businesses and spared little (or even no) effort on housing their own employees and other employees who serve their own. Instead, they should have concentrated on finding space for their employees first (as also for the employees that will serve their own employees); then only should they have thought of business space.

Few businessmen feel that they are responsible for housing their employees. They are prepared to pay high salaries to senior staff to live in expensive flats and to let the lower staff live in slums.

They could avoid both the high expense of housing their richer staff and the drudgery of the others living in slums by combining with real-estate developers and by inducing them to build houses both for the rich and the poor. The government too could have helped them by developing infrastructure for them.

Then, consider the following scenario: In every tehsil, the government asks villagers what land they would be prepared to spare (and at what price) for schools, hospitals, markets, roads and other services plus enough land to attract businesses and their employees.

Most businesses need only 10-25 acres of land. Hence, the government could insist that they will consider only tracts of land that are at least 10-25 acres in extent. Having secured the will of the people, the government could then choose the best option and yet be able to acquire thousands of acres of land in most tehsils.

Please note that there is no compulsion for anyone to surrender land. There is no bargaining on price either. At best, the villagers could be asked to make a second bid and no more. The entire transaction is open. The government chooses a place which turns out cheapest. At the most, it may have to acquire some land to build/ widen roads but no forceful occupation otherwise.

There are several thousand tehsils in the country; we need barely a couple of hundred SEZs to start with. This kind of competition ensures that we will get a good price that satisfies both farmers and the society at large.

Having acquired the land, and specified the regulations for buildings, the State can then let the space out for land developers.

In other words, instead of getting businesses first, and then leave it to chance for developing infrastructure, the State acquires the land at a reasonable price, and stipulates to real-estate developers how they should develop the infrastructure. In turn, real-estate developers will talk to business houses and get them to make their investment worthwhile.

This scenario will cost the State very little. No doubt, it will have to build roads of good quality to link the tracts of land that villagers are willing to give. For a thousand acres that may not cost, in all, more than a couple of hundred crores. That will be a worthwhile investment because that cost is no more than the cost of building flyovers in large cities. The government should also halt further expansion of existing cities and even divert its own offices to new ‘townships’ that will emerge among the villages.

The advantages of these systems are several. First, costs will be much less than enlarging existing cities; there will also be next to no need to absorb good cultivable land. There will be next to no objection from villagers. The new areas will get all basic infrastructure, both for employees of businesses and for employees that serve employees.

Above all, our cities that are growing haphazardly will stop growing. Actually, our cities should be shrunk so that no one is compelled to live in a slum. It is difficult to convince policy makers and business houses that smaller ‘townships’ can be developed and distributed among ten or twelve villages.

It is more difficult to convince them that people will be happy to live in such towns with a combined population of about 50,000 people even when they have modern schools, hospitals, markets and the like. It is even more difficult to convince them that such towns can indeed be developed. However, if we continue to proceed the way we have been, and expand cities without limit, we will suffer.

(To be continued)

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