An economy run by rent-seekers

What could Rahul Gandhi and P. Chidambaram have in common, apart from belonging to the same party? The young prince goes to North Indian villages to convince potato growers that their crop would turn more rewarding if global retailers were allowed in; the Finance Minister hits the global highway hoping to convince increasingly sceptical investors about the readiness of India’s policy environment and stakeholders for their capital.

Both represent the two shades of a common perspective; one wants to persuade the farmer of the gains of global capital, the other hopes to convince global capital of the nation’s readiness for its largesse. Increasingly we are now seeing a fundamental change in the policy world never witnessed before, a change whose outlines define not just the way the economy is shaping up but the future trajectory of its evolution.

Services paramount

Perhaps the coming Economic Survey will enlighten us further, but last year’s may suffice to show how the organised economy has panned out. From the extensive data it presented on a sixty-year time span, the Survey shows the gradual decline of the rural sector and the ascendance of Services as the main driver of GDP growth. The Survey termed it a “major and vital force” since the “entire decline in the share of agriculture has been balanced by the increase in the share of the Services sector.”

Which segments in Services played the lead parts in creating its dominance is most revealing: Trade, Hotels, restaurants followed by Finance, Insurance and real estate. Services have become the major breadwinner for India, both in terms of GDP and employment. Most policymakers, commentators and, particularly, the affluent urban middle-class will, of course, view this with approval for it connotes to them the sign of the Indian economy’s maturity.

The data on GDP growth components breed their own verities, first as policies, then as myths for mass consumption, which in India’s case means consumption by, and for, a large and increasingly self-conscious middle-class.

Mysterious valuation

Almost every major policy of the Centre and States has both abetted and perpetuated GDP trend growth primarily by turning land into the most prized asset. Its value does not emanate from any market determined price based on the availability of information and transparency of ownership and transactions.

In India, land is prized precisely because of its opaque titles that allow its value for exchange or alienation to be determined by non-market forces — by the power of extra-economic coercion and persuasion and by the exclusive access to policymaking. As valuable for growth as finance capital, it is as hidden and non-transparent as black money with which it enjoys a unique symbiosis; an asset more productive than gold, land remains the most hidden from the regulatory eye in its rent-seeking possibilities.

In the case of land, winner takes all and the winners are usually those with political power and capital. Unlike in a mature economy, these two elements determine and shape land markets with all their attendant distortions.

Those distortions are reflected in Real-Estate or housing. The Residex of the National Housing Bank remains a theoretical construct for values that are prefigured and manipulated by builders on criteria that have nothing to do with sustainable urban planning or quality of life, but with the illusions they create of the good life.

It is an irony that policymakers want to relax land use norms in urban areas to help builders develop “low cost housing” that in reality exist as a cover for the dispossession of land for exclusive private and high-cost real-estate activity.

What more evidence would one need than the complete disregard for public open spaces and maidans now evident in most cities?

SEZ effect

Perhaps, policy makers did not intend it that way. But one single policy changed the terms of engagement over land, the Special Economic Zone Act of 2005. Land disputes always existed so long as the state had to acquire farmlands for public sector projects, the Sardar Sarovar project being the most contentious case in point.

But it was the SEZ Act that uncorked land’s hidden values and the discourse around them when the government of the day accepted the suggestion of one of its ministers to step aside from the exchange of land between SEZ developers and peasant-landowners.

The ancient and creaky Land Acquisition Act and Rehabilitation legislations, both dysfunctional, created their own dialectic of power as industry began sizing up real-estate possibilities in the SEZ Act, and their muscle power and money to extract the best price for land.

It was only a matter of time before the richer rural landowners, usually on the outskirts of smaller urban centres, saw immense possibilities for rent; equally, land dispossessions for ‘industrial’ or core projects such as the fishing ports in western India for mineral exports and the consequent extinction of traditional livelihoods were legitimised by the urges of growth and employment.

the good life

For these reasons it also becomes a safe and the most profitable “agent of inversion” for unaccounted money and the crucible for political power; the same applies to real-estate and housing, equally cloudy with “housing values” based on entirely speculative norms or at best on dubious ones, such as perceived demands for second homes in swishy neighbourhoods (Residex? What Residex?).

Policymaking pieties about ‘housing’ as priority, lower home loan rates as effective monetary policy, hide the truth of that sector’s murky environment; abetted by media discovering modernity and ways to devour it, those homilies are turned into myths to live by, myths based on a fractured vision of the good life; on the dichotomy between housing as a physical priority-need (luxury or affordable) and the other constituents of healthy urban living: public parks, playing grounds, public transport, natural waterways, clean air. Inevitably these are discounted in the social calculus.

Backward village

The attenuation of urban life does not reduce its paramountcy in the middle-class imagination but is accompanied by a condemnation of the rural. Opposition to land acquisition, the struggle to retain sacred groves or forest rights or a hill in the back of the beyond generates anxiety and rage over rural obstinacy to embrace the urban agenda.

The “law and order problem” finds a deep resonance in middle-class consciousness.

An equally egregious myth is at work, paradoxically even after the collapse of 2008. The faith in the financial sector’s constant refinement free of regulation, in the “too-big-to-fail” intermediation theory and on size as the paragon of national economic and social status underlie the approval of recent financial reforms.

India is on the fast track, sure. But where to?

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