Karnataka’s IT minister says govt must stop using cheap land to lure firms. He’s right.

In a recent interview, Kharge said Karnataka no longer needs to give away land for cheap or free to IT companies to attract investments into the state. His contention was simple: the state incentivised IT back when it was a sunrise sector three decades ago. Now that Bengaluru is the de facto IT capital of India, the state has India’s largest pool of skilled IT manpower and infrastructure, so it’s no longer necessary to throw in cheap or free land to sweeten the deal. “If my counterpart in another state is giving large tracts of land for free, it doesn’t mean I need to do that too,” Kharge said.

That is a remarkably enlightened stance for a politician to take, given the foundational role that land has played in industrial policy in the country. Direct investment by the state to drive industrialisation may have ended with the era of planned development, but land has remained a central instrument of state policy on India’s road to industrialisation.

Ground realities

In the post-reform era of competitive federalism, states essentially had three weapons in their armoury – land, tax incentives and subsidies, particularly for resources over which they had direct control, such as electricity and water.

GST effectively took away tax relief from the incentives kitty, which left land and subsidies. Land, which the government either owned or could acquire citing ‘public purpose’ and its power of eminent domain, then became the principal incentive. It was the quickest and easiest way to pitch a state to investors: invest with us and we’ll give you valuable land either for free or well below the market price.

That is why land – cheap or free – remains central to industrialisation policies. Gujarat’s industrial policy, promulgated as recently as 2020, aims to offer land on long leases – up to 50 years – to industry at just 6% of its market value. Tamil Nadu’s 2021 industrial policy offers 10-50% discounts on land in designated industrial parks.

An idea whose time has past

The government’s logic for transferring public resources into private hands at subsidised rates has not changed since the first industrial estate came up in India: land will attract industry, which will drive employment, development, growth, and presumably social equity.

This sounds attractive, is politically sellable (even in cases where forcible land acquisition causes friction) and has even been true to a large extent, at least in the earlier stages of industrialisation. One could argue that anchor investors such as an Ashok Leyland in Chennai or a TELCO (now Tata Motors) and Bajaj in Pune laid the ground for subsequent development of the Greater Chennai and Pune-Chinchwad areas into the huge automobile manufacturing hubs they are today, employing tens of thousands of workers and driving the growth of these cities.

But for every such success story, there are hundreds of failures. Today’s urban skylines are built on the skeletons of previous industrialisation attempts, in most cases driven by concessional land allotments: from Mumbai’s Parel-Kurla belt, built on erstwhile mill land, to Delhi’s sprawling satellite city Gautam Buddha Nagar, more popularly known as Noida. The New Okhla Industrial Development Area was originally planned as the capital’s industrial hub but now houses only a handful of units – the rest is mostly commercial and residential real estate.

From ‘public purpose’ to commercial use

India has committed enormous land resources to industry. According to a CII-Knight Frank report, as of 2021, India had about 500,000 hectares of land designated for industrial purposes, comprising 3,989 special economic zones (SEZs), industrial parks, and estates. The report projected that an additional two million hectares would be required by 2034, in addition to an estimated 111 million square metres of warehousing space.

If the past is anything to go by, a significant chunk this land will be state-owned or state-acquired. The question is, will it achieve the intended goals? Again, the past suggests it won’t.

A 2014 performance audit of SEZs by the comptroller and auditor general of India found that only 38% of SEZs were operational in 2014, although approvals were given in 2006. As of March 2014, out of 45,635.63 hectares of land formally approved for SEZs, a substantial portion (14%) had been de-notified and repurposed for commercial use. “Land acquired for public purposes were subsequently diverted (up to 100% in some cases) after de-notification,” the report noted.

It added, “Performance of sampled SEZs (152) in the country indicated certain non-performance in employment (ranging from 65.95% to 96.58%), investment (ranging from 23.98% to 74.92 %), and export (ranging from 46.16 to 93.81%). While allottees certainly benefited in the long term from the concessional or free land eventually diverted for other use, the original landholders, forced to give up their land for a “public purpose”, clearly lost out.

This is why Kharge’s decision not to provide free or subsidised land to IT companies must be emulated across the board, everywhere. Governments need to stop misusing their power of eminent domain to acquire land for private business and focus on the real factors that drive industrial development – sound infrastructure, logistics & connectivity, and skilled manpower.