The average farming family in India needs an income of Rs 1.5 lakh per year to be comfortably out of poverty. This needs a combination of hard work, which they are willing to put in, and good practices, which are known. Unfortunately, this also needs access to about Rs 2 lakh of capital investment, which they don’t have. Ordinarily, such access should have been simple with the average farming family owning 2 acres of land, conservatively worth Rs 16 lakh.
But there is more to legal ownership of land than meets the eye.
Legally, “property owners” in India are occupiers who happen to have a title document. The title document merely records transfer of title with the imprimatur of the state. What is registered is the deed of transfer, not the authenticity of the title itself. As a consequence, title holders have a presumptive title, not conclusive ownership.
Unsurprisingly, banks rarely treat legal property documents as sufficient collateral for extending loans. In addition to pledging their property, borrowers have to show other assets. This leads to an unfortunate paradox – despite being the seventh largest country in the world by land mass, India is still capital starved, unable to leverage all the land that its citizens own to jumpstart the economy.
The net result is that only about 3% of all private and public land in India is leveraged for capital. Contrast this with the US, where conclusive title and clear boundaries allow 40% leverage – unlocking over $15 trillion of low cost capital – leading to its unarguable position as the world’s largest economy.
The lack of conclusive titles has impact far beyond economics. 66% of civil court cases are land related, clogging our courts. Indians are not safe due to land mafia instigated violence in cities. Peri-urban farmers are systematically driven out of their land by local strongmen. Migrant workers leave their families behind partly with the worry they will lose their property. Women continue to be systematically disenfranchised from ancestral property despite progressive laws.
This is an unfortunate legacy of a monarchical and colonial state which viewed land from the perspective of maximising revenue collection rather than respecting property rights. Under Sher Shah, a standard measure of 1/4th of the total cultivation was collected as revenue. There was little incentive to conclusively determine the rightful owner as long as the cultivator paid their share.
The same system continued under the British. The Madras province had no record of rights, while in Bengal or Bombay which did, the revenue record indicated presumptive ownership so that collection would be smooth. The raison d’etre of the colonial government was simply to collect revenue – it is no coincidence that the chief administrator of the district was called the district ‘collector’!
In a democracy, one might have expected this state of affairs to change. But a permissive colonial acquisition legislation for public purposes (the Land Acquisition Act, 1894) which facilitated large-scale acquisition for roads, dams and factories, seen in the Nehruvian era as the cornerstone of growth in a centralised economy, foreclosed further land reform. The economic potential of conclusive titles for the ordinary Indian to lift her out of poverty was overlooked. It remains unrealised seven decades on.
This state of affairs can be set right with three simple but far-reaching reforms. First, India must move from loose property descriptions by patwaris to digital GPS boundaries tagged to a unique owner. The technology – from centimetre accuracy maps to Aadhaar – exists to facilitate this change. Second, titles must be conclusively guaranteed by the state. This entails the state actually guaranteeing title rather than simply registering deeds.
Third, property documents, subject to safeguards, should be capable of being transferred in a demat form much like shares of a company in the stock market. The proposed registry must be digital, non-repudiable, transparent and voluntary, gently empowering owners to self-activate, migrating their holdings to the safety of a digital registry that potential buyers, banks and courts can safely rely on.
If these three changes are made, even by a conservative estimate of 40% capitalisation, India will unlock more than $4 trillion capital over a decade – dwarfing our FII and FDI flows combined. 150 million farm families will move out of poverty at societal scale. 100 million small-micro businesses will explode with capital-fuelled activity, creating hundreds of millions of jobs.
Startups and large enterprises alike empowered by an emboldened government and large pools of capital will become global industry leaders. The threat of choking a little of the hundred odd billion dollars in FDI, which today is enough to coerce the most well-intentioned governments to enact laws more favourable to international corporations, vanishes. Not only will this capital explosion flowing from conclusive titles increase India’s growth rate by more than 2%, it will be bottom-up, inclusive and freed of the yoke of foreign capital.
At the heart of this proposal is a simple idea – the Indian economy will not grow dramatically simply by infusion of FDI and creation of a few unicorns. It is only on the shoulders of millions of empowered small farmers and micro businesses that real growth is possible. India’s tryst with prosperity depends upon our resolve to give to ourselves, and particularly our farmers, the land we won back in 1947. Seven decades on after Independence, in Bhoomi Swaraj, lies the final realisation of Purna Swaraj.
Arghya Sengupta is Research Director, Vidhi Centre for Legal Policy. Lalitesh Katragadda is an Internet pioneer. Views are personal.
Originally published – https://timesofindia.indiatimes.com/blogs/toi-edit-page/indias-tryst-with-prosperity-these-simple-land-reforms-will-unleash-blockbuster-growth-and-unclog-our-courts/