Land Markets in India: Distortions and Issues

Abstract

There are certain inherent problems with land because of its peculiar characteristics, which impede the natural emergence of a well-functioning market. The legal and regulatory framework can potentially overcome these problems. In India, despite some reform efforts, the land market continues to be highly distorted and inefficient. Land records are inaccurate, outdated, and incomprehensive. There are widespread uncertainties relating to land titles, which have hurt the market. Transaction costs are significantly high by international standards, which have discouraged formal land transactions. Initiatives which could have made the market function better have not been taken; while some regulations have been introduced which have introduced or magnified the distortions in the market. A major negative consequence of this underdeveloped and distorted market is that promoters of industrial and infrastructure projects have eschewed market negotiations for land acquisition and have favored the use of eminent domain powers. While reforms have begun in many areas, an area that has been left untouched relates to regulatory restraints on land use. The most notable has been the requirement of NAC. Because the clearance is typically given after land is transferred from one party to another, there is a significant transfer of wealth from farmers to project proponents, which has been the source of a great deal of social discontent. The elimination of this restriction on land use would go a long way towards making the land market a great deal more efficient than it is now.

Keywords: India, land, acquisition, hold out problem, infrastructure, public policy, urban policies, land use, rents

JEL Classification: H4, H1, O2, R3, R14