ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Government Land Grants: Case for Reappraisal of Current Policy

The experience with grant or sale of land at a subsidised price to private bodies including commercial organisations suggests that decision-making by government is often arbitrary and as a result may have contributed to the establishment of domains of patronage and centres of profit, rendering the whole issue of public purpose highly debatable.

Government Land Grants: Case for Reappraisalof Current Policy

The experience with grant or sale of land at a subsidised price to private bodies including commercial organisations suggests that decision-making by government is often arbitrary and as a result may have contributed to the establishment of domains of patronage and centres of profit, rendering the whole issue of public purpose

highly debatable.

A PREMCHAND

Y
esterday’s solutions are tomorrow’s problems. This conventional wisdom is very applicable in the case of land grants or sale of public lands (or crown lands as they were known in the past) at throwaway prices by public authorities at all levels.

The original intent behind these grants was that they would serve public purpose that would not be served otherwise. Accordingly, lands were given to educational institutions, social service organisations, and selectively to individuals. The practice was quite common in British India as it was hoped that such an approach would provide a much needed human face to colonial rule. It was also extensively prevalent in the newly established democracies, e g, the United States. A consequence was the establishment of land grant educational institutions which continue to serve society. In India, during British rule, zamindars donated the income from specified villages for the maintenance of educational institutions. (Disclosure: The author was a beneficiary of such munificence.) Individuals were given homesteads to facilitate the westward movement of the population in the US, while in India and some south Asian countries, lands were given to facilitate transmigration and rehabilitation of dislocated communities.

The policy of land grants acquired a new dimension in the context of industrialisation and, more specifically, in the pursuit of foreign and domestic investments in specified areas. Packages of fiscal incentives formulated by several governments involve the free provision of well developed prime land. In several cases, the implementation of this policy involves the acquisition of agricultural lands and their utilisation for industrial purposes under mostly indifferent supervision by government.

Why Consider the Issue Now?

In practice, the use of this policy instrument has become so pervasive that it virtually covers all areas of government transactions. The beneficiaries include corporations, medium and small industries, a legion of non-profit organisations, and, selectively, some quasi-religious organisations.1 The procurement of a land grant from public authorities has spawned, it is argued rather vigorously by those familiar with the political and administrative scene, a separate culture. Increasingly it is becoming apparent that far from serving the social and economic purposes of governments, the policy has contributed, in the absence of effective checks and balances, to the establishment of domains of patronage (a felicitious description provided to the author by C D Deshmukh, when the author was engaged in the writing of a book Control of Public Expenditure in India (I963)) and to centres of profit.

While admittedly there are no limits to such policies, except those of a physical nature, such as availability of land, there are clearly priorities that need to be formulated. Should they, for example, be followed for the provision of land for movie studios, or for construction of houses for movie stars, judges, retired civil servants and others? Or should they be restricted to areas where the social benefits are clear, visible and measurable? What should be the criteria for the grants? Should they be left, as is the case now, to the individual discretion of the executives, or be parts of incentive packages? What are the transparency and accountability requirements of these policies and to what extent are the underlying intents of the grant realised? These and related numerous issues need to be resolved. The following considerations buttress the need for a reappraisal of the policy. There is a Buddhist saying to the effect “If you wish to know your past life, look to your present circumstances; if you wish to know your future life, look to your present actions”. Both the present and future are too important to be relegated to areas of benign neglect.

Aspects of Public Policy

All policies are the results of the dynamics of values and facts. In day-to-day practice, the approach of governments in a specified area to achieve commonly agreed goals, involves the assessments of results as well as costs. Policies, in general, have a political role, a problem solving role, a judicial role, and a specified role for the community which is expected to make financial sacrifices in support of the proposed land grants or engage in other forms of contribution. It is recognised that where decisions or strategies are excessively value-laden or have specific political purposes, they have the potential of becoming more controversial with the distinct possibility that the remedy may be worse than the malady.

The experience during the last few decades illustrates that the political role, which is always not visible or explicitly recognised, has always been an important consideration, in particular, in the area of land grants to religious and quasi-religious institutions. One survey points out that government support of religion was sought to be portrayed as the credentials of true secularism. In turn this has prompted corporations and business houses to engage in philanthropic contributions so as to be seen as socially responsible. A consequence of these approaches is that they assist in legitimating the power of the ruling class. Lisa Mckean’s Divine Enterprise (University of Chicago Press, Chicago, 1996) provides ample evidence in this regard. Political activity is an integral part of any democracy, but the balance shifts, when governments are engaged in land grants and other contributions in promoting causes that support them and lend legitimacy. The proclivity to engage in these activities is a common

Economic and Political Weekly January 20, 2007

one, but the community needs to be assured that there are adequate checks and balances and means of accountability, to ensure that both the primary and sub-texts of policies are transparent.

Intent and Outcome

Land grants imply that there is a need in public life that would not be addressed without the support of government. It can be argued that where the community perceives the need to address a problem, it would also find the means for financing the necessary mechanisms to solve the problem. This could take the form of donations where the need is of a local nature. Where the need is of a broader character, governments may be requested to step in and address it.

It is in pursuit of these broader needs such as the establishment of major educational institutions or the development of backward areas that governments have stepped in to play a major role. In the case of the former, ie, local needs, the government was expected to be the provider of the last resort with major roles performed by social service organisations. In practice, however, governments have become the primary sources and social charity a distant secondary source. Even the social service organisations look for provision of public lands as the first phase of action that needs to be completed. As a result, there is intense political lobbying for securing the land; quite frequently, political considerations masquerade as social objectives.

The judicial or equality aspects reveal, however, a more complex picture. To whom do the benefits accrue? This depends on the area of activity for which the land grants are given. In the case of quasi-commercial educational institutions or private health organisations, land grants constitute an important physical asset that has been transferred from the public domain to private ownership. Over a period of time, the land acquires growing value that benefits the owner. An example is the five star hotels built in Delhi to accommodate the visitors and participants of the Asiad Games held more than two and half decades ago.

An important aspect of the land grant is that it has the consequence of altering the playing field. Government actions have the impact of changing it in favour of the new entrant, and in the process, altering the nature of the market itself. This aspect is never given the proper recognition as packages of fiscal incentives (loans at subsidised rates, tax holidays for a decade, exemptions from custom duties, and frequent write-off of loans) have become too common to be questioned or periodically reviewed. Where the local grant is given to a commercial organisation, the issue arises whether the proposed involvement is for public or private interest. Given the recent scramble among state governments to offer competing packages of incentives to Volkswagen, the German automaker indicates that this is undertaken in the public interest to attract investments regardless of the costs involved.

Legal Grey Zone

Under Indian law, any official who accepts any gratification for doing an official act is considered guilty of corruption. The provisions of the penal code, which are by far the most comprehensive of its kind, bear full reproduction here. A person is considered to be guilty of corruption who

being or expecting to be a public servant,accepts, or obtains, or agrees to accept, orattempts to obtain from any person, forhimself or for any other persons, anygratification whatsoever, other than legalremuneration, as motive or reward for doingor forbearing to do any official act or forshowing or forbearing to show, in theexercise of his office functions favour or disfavour to any person or for renderingor attempting to render any service ordisservice to any person.

The other side of the transaction where a public authority provides money or land to a private individual or a corporation to influence their investment decision in favour of the government is different in that it is considered an incentive to induce a particular result from market forces. With a view to making such transactions legal, tax incentives are generally evolved as parts of established legislation enacted by a competent authority. Although the day-today exercise of the powers by the executive wing of the government may in some cases, be discriminatory, the fact remains that the transactions are legitimate and justifiable.

Land grants to corporate enterprises often reflect a framework of heavily layered decisions, not all of which may be visible to the public. The law empowers the executive to sanction land or sell it at prices that are substantially lower than market prices. Within this framework, grants are made. The problems arise, however, when the size of the landholding as well as its location become part of substantial negotiations between the grantor and the grantee. Both these aspects are determined so that the investment decision is obtained at a price that the prospective grantee indicates. In addition to this top layer, there are several informal understandings among the negotiating parties regarding the distribution of the spoils that arise in downstream activities, such as distribution of sales dealerships, procurement arrangements for supplies, etc. All these aspects contribute to transactions that are far from legal or appropriate. But they rarely surface and illegal gratifications, in one form or the other, are common. These issues have their origins in the unrestricted powers of governments to make land grants. In the absence of any legislation governing the approaches of the government, decision-making tends to become arbitrary and discriminative.

Transparency and Oversight

Fiscal incentives, being part of legislation, are generally transparent. In addition, governments often publish the impact of incentives, in terms of the potential revenue loss. But this practice is highly uneven among various levels of governments and information tends to be scanty at state and local levels. Information on land grants is rarely consolidated, however, and as such is an area of darkness. Monetary grants are specifically provided in the annual budget appropriations, and to that extent data can be compiled, although they are rarely consolidated to provide a complete picture of the dependence of several institutions on governments.

The utilisation of incentives, land grants and monetary grants, is an entirely separate matter. The balance sheets of corporate enterprises, which represent the receiving end of the transactions, do not throw any light on the patterns of utilisation or the financial health of the enterprise. In fairness, it should be noted that under the existing accounting standards, they are not called upon to throw any light on these transactions even when they have a sizeable impact on overall financial health. To that extent, transparency should be seen as limited and the community has no idea about the impact of the land grants or about the patterns of their utilisation. All that it has is the presumption that the grants have been utilised for the purpose intended.

In theory, the audit department is empowered to follow the trail of the rupee, and verify whether the intent is fulfilled

Economic and Political Weekly January 20, 2007 or not. It can do so even when the transactions are of a non-monetary character. The adoption of a modified, accrual system of accounting by the government enables the audit agency to look into the matter of land grants, as land represents an important component of government assets. It should, however, be noted that the modified accrual system is still in its infancy and it will be a long time before systematic data become available on the movable and immovable properties, heritage assets, and financial assets. Even under the existing system, the audit department makes only limited forays into the activities of the grant-aided bodies, as it often believes to be overwhelmed to carry on even the primary tasks of an appropriation audit.

The legislative committees hardly make any attempt to go into these issues in the absence of detailed audit reports. So one handicap leads to another with the result that legislative oversight in this regard is practically non-existent.

Next Steps

The function of stewardship of resources entrusted to governments is too important to be neglected and efforts should be made to address the above issues and improve the situation. More specifically, it would be appropriate to take the following steps:

  • Governments should formulate the criteria for the acquisition and grant of lands or the sale of land at a subsidised price and announce them in the form of binding legislation or a white paper. The public purposes that are expected to be served should be stated specifically.
  • The transparency aspects of the grants or sale should be improved by including a statement of the approvals granted during the previous year in the annual budget statement.
  • It is necessary for the corporate sector to strengthen its accounting standards so that the balance sheets reflect the utilisation of the resources provided by governments and their impact on the overall financial condition of the corporation. Specifically, the statement on the “sources and uses of funds” may be expanded to include the value of the plant, property and equipment provided by the government, and its initial and current values. This will enable the community and the corporation to have a better understanding of the value of the transactions.
  • The annual programme of supplementary audit undertaken by the audit department should include a selection of the grant-receiving bodies.
  • The legislative committees should also endeavour to evolve a programme for the consideration of the end use of the land grants. It is recognised that legislatures are like proverbial horses that can only be taken to the pond but cannot be forced to drink the water. It is for this reason and with a view to closing the loopholes that they should, on their own initiative, evolve a programme of reviews supplementing the efforts in the previous stages.
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    Email: apremchand1@cox.net

    Note

    1 The transactions of religious organisations pose several issues. In some countries, e g, the US, the Bill of Rights restricts the powers of the Congress in this regard as it explicitly states “Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof…” For a recent discussion of the frustrating experience, see Henriques, Diana B, ‘Religion Trumps Regulations as Legal Exemptions Grow’, The New York Times, October 8, 2006.

    NATIONAL RAINFED AREA AUTHORITY

    Government of India has set up the National Rainfed Area Authority (NRAA) with an objective of overall holistic and integrated development of rainfed regions of the country. The Authority is a two tier structure. The first tier is the Governing Board headed by Union Minister of Agriculture and the second tier is the Executive Committee headed by a Chief Executive Officer who will be supported by five Technical Experts in the fields of Water Management, Agriculture/Horticulture, Animal Husbandry and Fisheries, Forestry and Watershed Development.

    NRAA is looking for a person of outstanding calibre and eminence with rich field experience and administrative acumen having leadership qualities with Post Graduate Degree preferably in Science or technology and more than 16 years experience at a senior position to serve as Chief Executive Officer (CEO).

    NRAA is also looking for highly qualified specialists with Post Graduate Degree in Science or Technology in the relevant fields and more than 10 years experience for the respective posts of Technical Experts.

    The details of the advertisement and of these posts should be seen in the Website of Ministry of Agriculture

    “www.agricoop.nic.in”

    Nominations/applications of suitable candidates along with bio-data may be sent to the address of Joint Secretary (RFS), Department of Agriculture & Cooperation, Ministry of Agriculture, Room No. 155, Krishi Bhavan, New Delhi 110001. The last date for receipt of application/nomination is 12th February, 2007.

    Economic and Political Weekly January 20, 2007

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