One big change that has totally altered the economics of greenfield projects in India is land costs. Till the early 2000s, land was available in many parts of the country at ₹50,000 or less an acre. Today, that base figure is probably ₹5 lakh. It would be two-three times more for land in not too remote locations, while crossing ₹1 crore closer to towns and ₹4 to 5 crore in metro suburbs. Compare this with the US, where farm real estate values averaged $2,900 (₹1.75 lakh) an acre in 2013 and rising to $12,700 (₹7.6 lakh) in New Jersey! Simply put, land can no longer be taken for granted. It now accounts for up to a quarter of the total project cost, as a report in this newspaper has pointed out (“India Inc expansion plans hit as land prices soar”, August 4). But it also means that of the four ‘factors of production’ that ultimately determine the cost of a commodity — labour, land, capital and energy — India’s competitive advantage is limited to only the first.
This has major implications for investment. Companies must not only reconcile to the fact that land is scarce and expensive and adapt accordingly. For example, a steel plant that may have required 4,000 acres in the past would need to be re-imagined to operate in a much smaller area. But it is not cost alone. The challenge of acquiring contiguous tracts of land in a country with fragmented holdings and no clean property titles is only increasing. Negotiating with multiple landowners will become even more difficult and time-consuming in future.
The situation demands a response from the Government that goes beyond treating land acquisition as a normal transaction between buyers and sellers. The regular market process will not work when buyers are vulnerable to the problems of holdouts (a small minority refusing to sell) and litigation (from the absence of firm titles). Even the proposed relaxation of certain provisions in the recent Land Acquisition Act — for instance, that relating to seeking consent from 70 per cent of landowners in respect of purchases for public-private-partnership projects — is not going to make a material difference here. Whether one likes it or not, we have today a seller’s market in land. Also, no big industry is going to come without contiguous land availability, which only the Government can facilitate. States should be encouraged to build land banks through direct purchases — which they are better-positioned to do than individual firms — and transfer these to companies either on an outright or a renewable lease basis. Such transfers must, however, be conditional upon the land being used for the originally intended purpose and not for speculation or property development. Without such interventions, there is the likelihood of India’s grand industrialisation plans coming unstuck due to inability to address the vexed land question.