The Indian Economy Blog

November 4, 2005

Highway Robbery by the Government

Filed under: Basic Questions,Business,Miscellaneous — Gaurav Sabnis @ 11:39 am

“Don’t steal, the government hates competition”

The first time I read this one-liner, I nodded heartily in agreement and approval. Of course, the first time I read it, I was 17, and the one-liner was on a sticker pasted on the bike belonging to a girl I used to have a crush on. So her bike sticker could have summarised Hitler’s Final Solution, and I would still have agreed and approved. But that doesn’t take away from the pithiness of the one-liner.

Readers might think I am referring to the cases of Natwar Singh’s oil kickbacks, or the Sub-inspector caught accepting bribes on camera. Those cases are foul, and represent how deep corruption has penetrated in the Indian system. But I am talking about an example where the government, officially and legally, is stealing from the people. And in what is a real tragic irony, the victims of this theft are the same farmers whose suicides are used by several parties and “thinkers” to oppose free market policies. Read the following article and you realise that this theft would have been extremely unlikely and difficult under a free market regime. But under this socialist regime, it is literally as easy as signing a piece of paper.

Govt adds to farmer woes in Vidarbha

Here’s the story in a nutshell. Farmers in Vidarbha, are being forced to sell their land to the government at a price way below its market value. The Indians laws, which show scant respect for property rights of an individual, permit the government to appropriate privately owned land, and also permit the government itself to set the price. The sellers victims can’t negotiate. They can’t even refuse to sell the land. The government will grab it anyway. Legally. In Vidarbha, the government is grabbing farm land and paying farmers only 1.2 lakh rupees an acre. The current market price, even within 100 km of the area, is around 70 lakhs. If an airport is being built nearby, I am sure the price would grow many times more.

Now, the very existence of such a tyrranical law is justified by its supporters saying that since the government will use the land for public good(roads, etc), it should be empowered to grab land from recalcitrant land owners. Well-being-of-many-is-more-important-than-well-being-of-few and all that jazz. Personally I find even this justification tenuous. But even if we do accept it for the sake of the argument, note what the Vidarbha land will be used for. It will be sold to private developers and companies. Buildings, industries, and an airport will come up on that land. Who will be doing this selling? The government of course. Already, it has auctioned off several chunks of the grabbed land at over 60 times the price they paid the farmers for it. The land is adjoining a highway, and has a great deal of commercial potential. Ideally, the farmers should benefit from the economic windfall. But the government is playing the part of a very canny middleman, and pocketing the profit.

If this isn’t highway robbery, I don’t know what is.

Imagine how things would be in a free-market scenario. Such a land-grabbing law would not exist. Neither would there exist laws which forbid farmers from selling their farms for non-farming purposes. Instead, a farmer would be free to negotiate the price of his land. Developers and private industries would come, negotiate a price, and buy the land from the farmers. Would robbery be possible even then? Yes, maybe. But only in the worst case scenario, and only if extreme force or threats were used. If the mafia decided to be the middlemen, and threatened the farmers to sell the land at below-par prices, and then sold it to the private developers, pocketing the profit. Even this would be possible only if the police/state were incapable of responding to the farmers’ complaints about the mafia. Without threats of physical harm, the farmers are not stupid enough to sell the land below its real value.

Here, however, we have a situation much worse. If the mafia or even the private developers intimidate them, the farmers can go to the government, i.e. police and ask for protection. Maybe even hire private security agencies. Here, the government itself is intimidating and forcing the farmers to sell their land dirt cheap. Where do the farmers go?

A lot of people think that the biggest cause of the failures in our system is “corruption”. I hope this example shows them, corruption is a symptom and not the cause. The biggest cause is the flawed system itself. In the Vidarbha case, let us assume no kickbacks have been paid to the government officials by private developers. Let us assume the deal is completely “clean” and free of coruption. Even then, with a process allowed, sanctioned, and enforced by the constitution of socialist India, hundreds of farmers are being fleeced out of a lot of money. Money that could improve their lot, enable them to start a new life in a profession much more productive, efficient, and profitable than monsoon-dependent farming. Money that could potentially stop a lot of suicides. Money which should rightly be in the bank accounts of farmers. But the money instead, is lying, not in the Swiss bank accounts of a few corrupt people.

It is lying in the coffers of the Government.

This post has been cross-posted on my personal blog Vantage Point

19 Comments »

  1. Great article. Thanks.

    A reference from Frederick Hayek’s book “Road to Serfdom” comes to mind, wherein he disputes and destroys the utopian term “The Most Good for the Most People” which is used by socialists very often.

    Hayek articulates that this term is both useless and dangerous. Useless because it have no practical value. Like saying the best way to go from Bombay to Pune is to “Take the Shortest route that is also the Fastest”. Dangerous because is confers “arbitrary” power to people who implement the “most good for the most people”. Thus, Joseph Stalin, in his mind was implementing the most good for the most people.

    Comment by Vivek G — November 4, 2005 @ 12:09 pm

  2. Hi Gaurav
    Excellent article.
    Indeed, acquiring land at below market price is theivery – pure and simple. There’s no other way to veiw this. It is despicable.

    An important point here: the idea that by getting land at below cost serves the public good by reducing government costs is completely false. This land costs the government the same amount whether they acquire at full price or at below price. The difference is who pays the cost of acquiring this land. If the land is acquired at full price, the cost is spread thinly over the entire taxpaying population. If the land is acquired at below full price, the farmers end up bearing a disproportionate amount of the cost. It is just like the young people who are drafted by the military – the draft saves no money, it just puts the cost disproportionately on a few.

    But the incentives to acquire land on behalf of developers are much higher if it can be done at below cost. The developer might see this as the preferred way to get land. Why pay the market rate when you can get your buddies in the government to get the same land a well below market rate. Again – this looks a lot like robbery.

    Also, acquiring land at below market value is terribly distortionary. If I have a business and I want to invest in a new factory of something, I will be very reluctant to invest if I know that the government can basically steal my investment. I will probably stick with the existing technology a little longer because there is less risk involved.

    No wonder India does so well in software technology. An investment in your mind is one investment the government cannot steal.

    Comment by Michael H. — November 4, 2005 @ 12:26 pm

  3. Government as well as people (Farmers) are culprit here. My grandpa is a farmer, and recently we purchased land in India. The reason government can take land below market value is: to avoid higher taxes, people pay market rate for land, but on paper they put very less. So when goverment forces people to sell their land, government only have to pay the rate recorded on the paper, not market value. How do I know this, Gujarat government had plan to build a highway, and they were gonna buy my land worth of ~2 million Rs.(Market value) for less then ~2 lakhs (On Paper). Well they scrapped the plan, so we are safe now.

    Comment by Dharmesh — November 4, 2005 @ 2:04 pm

  4. All this dates back to “Golaknath v. State of Punjab” and the subsequent showdown between the Supreme Court and the Parliament. Eminent Domain and Land Distribution are just symptoms of a much larger malice – the lack of respect for process in India.

    The legislative branch of the Govt has taken too much power and this what happens as a result. My family circumvented the land ceiling act by opting for a large family – my mother has 8 siblings :)) A lot of others did something quite similar.

    Comment by Nilu — November 4, 2005 @ 3:48 pm

  5. Dharmesh,

    The reason government can take land below market value is: to avoid higher taxes, people pay market rate for land, but on paper they put very less.

    What if someone had registered the land for the market rate 50 years ago? The current value of a land is estimated by the state government based on land values adjacent to the property. This punishes us for the mistakes that others make, and also makes the process extremely arbitrary because the buyer fixes the price.

    It’s also interesting to note that the entire Narmada agitation was to get just compensation for the villagers. Maybe the dam system wouldn’t have been built if the correct property value was taken into account in the cost calculations. The recent Infosys controversy also is probably linked to this problem.

    Comment by Eswaran — November 4, 2005 @ 6:03 pm

  6. We cannot blame the government entirely on this; the farmers are also responsible for the cause. Government judges the cost of the land purely on basis of what the land owner has declared on paper at the time of registration. But normally people show low cost of their property to avoid high surcharge for registration and other taxes applicable as a consequence of this they ended up receiving extremely low amount for their land from the government.
    Now while selling these lands the story is different. The selling process often goes by auction and whoever bids highest gets the hold. Considering the fact that government has a plan of building airport, business and residential areas in this zone, the bidder would willingly chose to pay much higher than the prevailing land rate because he could foresee a good return in the future. This may have resulted in the selling price getting hiked upto 60 times the cost government paid to the farmers.

    Comment by Umesh — November 4, 2005 @ 8:01 pm

  7. A couple of points.

    1. Saying that farmers are also equally responsible for it, since they declare an artificially low value at the time of registration, again ignores the system which steals. Why have such exorbitant taxes? Person A is selling land to Person B, why the hell should the government make a killing? Remember, farmers, like anyone else, are normal people. In their mind they do a cost benefit analysis, and evaluate whether it is easier to pay taxes and avoid the legal hassles, or to fudge the price and save money. The disincentive for sticking to the rules is so high, that they fudge the price. Remember the days of 70-80-90 percent income tax rates. Today, the income tax rate is way lower, and yet tax recovery, both in relative and absolute terms is much higher than those days.

    2. Even if a farmer fudges and gives a wrong price at the time of registration, making him stick to it denies the dynamics of the marketplace. It is his land, so he should have a right to negotiate the price, no matter what he quoted at the time of the purchase.

    Comment by Gaurav — November 5, 2005 @ 10:18 am

  8. Hi,
    nice post. As always. But what did you expect? In a country like ours, in a society like ours, I think we’re, most times, better off fighting smaller battles. These are not battles, the one you are posting about here, for instance, that are worth talking about. What is happening will continue to happen. Urbanization has proven to be a virus Indians seem to not get enough of. In a land of too many people and too few resources, greed will not be tackled so easily. We’re better off tackling smaller problems that will lead to small changes that will ensure the thing that is happening here, that you have talked about, will not happen in the future. You need a movement to change this. A blog entry will do little. This is no IIPM fracas that is going to be brought to anybody important’s attention. Sorry to be such a contrarian but I think we need people like me, also. Maybe. :-) Avi

    Comment by Avinash — November 5, 2005 @ 11:17 am

  9. Regarding the point on free-market scenario ,you say “Without threats of physical harm, the farmers are not stupid enough to sell the land below its real value. ”

    Farmers ,especially small,have a tendency to migrate to cities in search of a better life.Both because there standard of living is bad and the city holds the promise of comparative prosperity.Generally,
    they fail and the last resort they have is falling back on their land.

    Now,if a farmer can sell his land for non-farming purpose,there are a lot more chances of someone tricking him into selling the land or he himself selling land.

    Now,his last resort is also gone,and he has got nothing to turn to if the city doesn’t feed him.

    I believe Indian farmers are not yet ready for free-market style of economy as far as farmland sale is concerned and they are stupid(in their pursuit of prosperity in the city) and poor enough to sell their land below its real value.

    Comment by Yogesh — November 5, 2005 @ 2:10 pm

  10. This has been happening for a long time. Personally I have seen one of my friend fighting a court case against the govt.. His land was marked for expanding the Bus Stand at a price of x Lakhs, when the market value was x Crores. Finally a local politician bought from him for x/2 crore(still knowing about the court case)
    Even though he got a better price, it still hurts.
    Jagan

    Comment by Jagan — November 7, 2005 @ 2:45 pm

  11. Hi,
    Its sad that farmers are being fleeced like this by their democratic govt. But 2 moot points here

    a) Did the land belong to the farmers in the first place? As per my limited knowledge of the law, a certain amount of land around highways and rail tracks belongs to the govt. .. if these farms fall in that zone, then those farmers don’t even have to be paid to make them leave as per my knowledge of the law.

    b) Why do you assume that this is socialism at play? While I agree that “bahujan sukhaye bahujan hitaye” type of arguments have been quoted to hoodwink large sections of public in socialist regimes, they have also been utilised in capitalist regimes. I think Bush’s Patriot Act in capitalist USA for one, entails suspension of individual rights for the sake of the ‘larger’ good of society. Nowhere did Marx or Engels write anything that wud justify such behavior on the part of a socialist govt.
    My point is that such a dastardly act of duping poor farmers is just that, a dastardly act of duping .. I see neither reason for nor evidence to give this act a capitalist or socialist hue.

    Comment by Aniket — November 7, 2005 @ 3:45 pm

  12. Why have such exorbitant taxes? Person A is selling land to Person B, why the hell should the government make a killing?

    Well you may furthur argue then that why should a salaried person pay Income Tax… it’s HIS hard earned income…
    or you may similarly argue…. why a Businessman should pay Sales Tax… he is selling the goods he owns to person B… why the govt shoould make the killing…

    dude you are into redefining the whole taxation system :)

    I don’t know how the govt will then have money to run the system??

    Comment by Umesh — November 7, 2005 @ 9:29 pm

  13. Anarcap cartel bloggers algorithm
    ———————————
    1. India has many problems {P}
    2. Pick problem P’, P’ E {P}
    3. Attribute P’ to socialism by definition
    4. P’ is so large in scope nothing can be done by anybody other than writing a blog on P’ !
    5. goto 2

    Consider this – If I am Infosys or TCS and I need land in Bangalore to expand my operations, I would be a complete idiot to negotiate with farmers in free market for $100. Just call the home minister and arrange for GoI to buy from farmer for $10, sell it to me for $20, and I would have saved $80, GoI gets $10, poor farmer loses $90, but who asked that sucker to get into farming in the first place? He should also open one call center & he can do the same thing I am doing. Now let us blame socialism for this, otherwise how can we continue to write blogs ? Atleast honest blogger like Kiruba is doing marathon running and boating to burn calories on the side, but this anarcap attention seeking intellectual masturbation burns only bandwidth, not a single calorie.

    Comment by Kya yaar tu bhi — November 8, 2005 @ 2:14 am

  14. Kya yaar tu bhi — Thanks for your insights. We’re privileged that you’ve chosen to share your pearls of wisdom with our humble readers…

    Comment by Prashant Kothari — November 8, 2005 @ 8:09 am

  15. Nice article Gaurav.

    Of course this is not a phenomenon restricted to Vidarbha. This has been happening a lot, especially in growing cities like Pune. Government decides they need to build a road. They will just grab some land to do that.

    Anytime you invest in a property in India, you have to make a judgement whether some piece or the entire lot will be taken by the govt. This is like a bond you own gets called at way below maturity price. Not fair to you as an investor.

    Its almost as if the Govt owns the land and you are the perpetual leaseholder of the land. Government has the final rights on the land. (Is it indeed like that?)

    Aniket, if you dont call this socialism, then what is it? The patriot act, however heinous, is an exception and not the rule in a free market. There are always elements in power who would want such a thing given the power they get with such laws. But this would not have been possible without the 9/11 attacks. Also I believe it wouldnt have passed if it had such liberties like in Indian laws for socialistic tendencies.

    Umesh, in the taxation system, govt doesnt target one individual or a group of individuals unfairly. The burden is shared by the entire society. Why make the poor landowners bear the entire burden in this case? The high current market price should be spread out over the entire population.

    Disclosure: My family has personal experience in losing a prime property to government whims. Karad decided to build MIT college in Pune. No problemo. Ask the government to grab acres and acres of land for educational purposes. Mr. Karad here’s your land for free! After 2 decades of litigation they gave us some land a distance away on a hillslope. Later the govt decided to not allow construction on that particular hillslope. So poof, the entire piece of land is gone. If you know Pune, you would know how expensive that land would be.

    Comment by Mihir — November 11, 2005 @ 7:20 pm

  16. [...] . Related Links: Ila Patnaik’s call for reform (via Ajay Shah) and earlier posts by Gaurav Sabnis, Sandeep, Ashish Hanwadikar and Sonia Faliero
    [...]

    Pingback by The Acorn » Vidarbha whodunit — July 1, 2006 @ 11:10 pm

  17. [...] Related Links: Ila Patnaik’s call for reform (via Ajay Shah) and earlier posts by Gaurav Sabnis, Sandeep, Ashish Hanwadikar and Sonia Faliero

    [...]

    Pingback by The Indian Economy Blog » Blog Archive » Vidarbha whodunit — July 1, 2006 @ 11:43 pm

  18. If Infy feels they require land and that because of infrastructure problem. I propose following solution.

    *Govt float a 30 year bond in market. (Insurance companies will be interested buying big share of these bonds).
    *Buy land from this money with a premium to market price and allocate a part of bonds to land owners.
    *Give land to companies to build township and office complex on BOT concept (Build Operate Transfer concept). Let them use it for 25 – 30 years and then transfer it to Govt in phases. That time this property can be auctioned/rented to pay for bonds.

    This scheme ensure:
    development not land grabbing as 25 year time start when land is allocated.
    opportunity to all.

    Comment by Bhupesh — August 1, 2006 @ 12:59 am

  19. Glenn fears for players
    Glenn Roeder fears unwanted UEFA business home own start business home own start games could leave his Newcastle United squad decimated by injury.

    Comment by business home own start — September 10, 2006 @ 3:04 pm

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