Time to give meaning to land ownership

Poorly defined property rights have undercut India’s economic potential

Last week, the Rajasthan government passed a landmark bill in the most literal sense possible—the Rajasthan Urban Land (Certification of Titles) Bill, 2016, and it’s possible that Maharashtra will soon follow the cue. By signing off on the legislation, Rajasthan has shown its commitment to convert—in the words of Peruvian economist Hernando de Soto Polar—dead capital into live capital. In other words, the bill will formalize informal property, eliminate uncertainties associated with ownership and make it tradable.

De Soto argues that capitalism’s success in the West depended largely on a formal system of documented property—the key to unlocking capital. That is a system conspicuously absent in India.

Ill-defined property rights and high transaction costs in land market have become one of the most significant factors depressing the country’s ease of doing business. A 2014 report by Rights and Resources Initiative (RRI) shows that over 25% of districts are affected by land conflicts. The complicated land market has encouraged project promoters to use the state as a medium to acquire land instead of engaging with the market directly, thereby increasing the conflict between the citizen and the state.

The historical genesis of this state of affairs can be traced back to the colonial era. Land ownership in India never quite managed to get over a colonial hangover where only rural areas that had revenue potential was selectively recorded. After independence, the new government, unwilling to bring upon itself the huge burden of titling, continued the system as it was. This was in spite of the fact that one of the primary difficulties in abolishing thezamindari system was the absence of land records. Also, since land was a state subject, the onus of land titling fell upon the newly formed states. Among these new states, only a few such as West Bengal and Kerala were able to successfully initiate reforms in that direction.

Gradually, the problems got compounded. The revenue department and the registration department duplicated the function of maintaining land records. The narrowing boundary between urban and rural areas placed new land registration duties with municipal corporations that had no interest in documenting land that could not be taxed. The deed registrations which placed the onus on the buyer to ensure that the seller’s rights are genuine also complicated the land market. This was different from title registration which existed simultaneously though not extensively enough with deed registration—wherein the guarantee came from the registry that the title owner was entitled to his land or at least to a compensation in case of fraud or error. The land market situation in India cannot be fixed until and unless the latter becomes the only system for property rights.

There was some progress in post-liberalization India with computerization of written land records in 1998-99. However, there was no focus on creating accurate updated records. There was also no legal provision for a land owner to register his property with a notified authority. Thus, there was always a risk that a seller would not have a clear, unencumbered title to the land. This mostly depressed prices below true value.

It is against this backdrop that Rajasthan’s initiative must be seen. It will, hopefully, be part of a broader push with the centre gearing up for its Land Transformation Management System, mentioned in the Union budget. The latter’s main agenda is integrating land records with Aadhaar, digitizing them and matching the real holdings with the documents. If implemented properly, it will go a long way towards addressing historical problems—easing land acquisition, empowering land holders and enabling the use of land as an asset for accessing credit. It will also delineate the difference between rural and urban areas with its geographical information system (GIS) and help in better price determination of land in accordance with the provisions of the land acquisition bill. And it will improve targeting of fertilizer subsidies on the basis of estimates of real holdings as well as enhance transparency by bringing to light the total land holdings owned by an individual across districts or even states.

But such an initiative will require the full-fledged support of its federal counterparts. Karnataka, Tamil Nadu, Andhra Pradesh and Maharashtra have set good examples—and now Rajasthan, of course. There are also operational and structural lessons to be drawn from best practices elsewhere—Sweden’s new online system for registering property, Azerbaijan’s online procedure for obtaining non-encumbrance certificates for property transfers and Senegal’s elimination of requirement of authorization by the tax authority for property transfers.

Will land titling improve the land market in India?