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C O M M E N T

By Aditya Dash*

THE best thing about the latest IDCO land scam is that it shows that the Comptroller Auditor General’s office has become bolder. The other good thing is that the CAG questions a practice that has been continuing since the formation of IDCO and its predecessors. As they say, “Better late than never.”

(Pic courtesy: thehindu businessonline.com)
(Pic courtesy: thehindu businessonline.com)

For those not in the know, it seems like a scam of monumental proportions. Figures have been mentioned in acres and crores that baffle the mind. Let me just break it down to simple things. IDCO is a nodal agency for industrial development in the state of Odisha. It has similar avatars in other states too. The primary task of IDCO is to build industrial estates and lease out the plots to industrial units. They are also supposed to maintain the industrial estates but just look at the road conditions at Mancheswar Industrial Estate and Rasulgarh Industrial Estate and you will know that maintenance is low on their list of priorities. After all, buying a hockey team is so much cooler!

The rationale behind the formation of IDCO is efficient urban planning and increasing the supply of land. An entrepreneur will approach IDCO for leasing a plot of land for 99 years.

Usually, auctioning land makes more sense but it would lead to more outrage. There are instances of the West Bengal government leasing out land for 199 years with a renewal clause of three times! I bet even Chandragupta Maurya wasn’t that generous, but that’s another story.

As per standard practice, the entrepreneur in question will need to offer the bank collateral against which the bank will finance. Since it is leased land, banks will need a permission letter stating that the lessee is allowed to mortgage this land from the Competent Authority (one of my favourite phrases). This had been standard practices until CAG suddenly woke up and questioned how can IDCO be the competent authority since the land is owned by the government of Odisha?

All hell broke loose; three departments had to coordinate. The Revenue department, Law department and IDCO, till these triumvirate came up with a solution that satisfied CAG, everything else was held up. Now up to this is the good part. That our institutions work late rather than not work at all is a good thing. Overall it’s good to have checks and balances that will keep crony capitalism in check.

ADITYA DASH
ADITYA DASH

The bad part was felt by the MSME entrepreneurs. Not too big to attract notice and not too poor to be written about as a sad piece. Take for instance a seafood processing unit located in Balasore Industrial Estate. It wanted to modernize its factory which would increase volume, raise employment and tax revenues. When the promoters approached their bank for a term loan, they offered to give their processing unit as collateral. This unit was built on land leased for 99 years from IDCO. Permission for mortgage was now suspended as explained above.

Consider the entrepreneur, who has invested substantially in a property which s/he is now unable to use as collateral, so expansion plans were put on hold. This is just one example; there are countless examples such as these. If only the bean counters at CAG analyzed the impact of their actions, but they follow the dharma of Bheeshma, you see! So growth, especially in the MSME sector, was stymied. No babu worth his safari suit would intervene in this mess. No minister wanted to taint his starched white kurta and the law took its own slow course. Finally, the matter has been resolved and things are back to normal. So what if we lost out on 2 to 3 years of growth in the crucial MSME sector.

The entire episode should make us question certain fundamental facts. One of the things I find very objectionable is that the land acquisition act can be used for acquiring land for industrial purpose. The recently amended act is a welcome step, but is it really necessary to use the coercive arm of the state to acquire land for industry? I have no problem as long as it is roads, bridges and airports, but industrial units? Maybe all this happens since the right to property in India is a constitutional right and not a fundamental right.

Here are some of the ugly aspects of the CAG report. IDCO would acquire a lot of land for big scale projects (read big companies with bigger pockets) and give permission to industries/companies for mortgaging such land. This explains the insatiable hunger for land that business owners have. Banks need to comply with RBI norms about collateral, value of land is more flexible than cold hard cash. Given the right incentives, land can be shown to have a value that is 100 times the amount it would fetch were it to be sold immediately. IDCO went so far as to use the emergency clause in the land acquisition act so as to speed up the acquisition process and acquire land from land owners using the coercive powers of the state.

idcoI seriously don’t consider industry to be a public purpose. There might be some planning rationale for establishing industrial estates but these should be built on land acquired by the industry. If I owned a piece of land, I would perhaps give it up for roads, railway tracks, hospitals, but certainly not yield an inch of it for establishment of an industrial unit. IDCO and others can definitely follow the Thailand model, where the corporation acquires land voluntarily and establishes industrial parks.

 

That having been said, I have a lot of industrial units located in IDCO industrial estates and some of them have been mortgaged to banks for financing my business activities. I am also a proud non playing member of the Bhubaneswar Golf Club, whose present location is on land allotted by IDCO. I don’t think it served a public purpose but I love to sip a cold glass of beer and enjoy the monsoons vthere. See what happens when you give government discretionary powers?

Industrialization is important but not at the cost of trampling over the rights of the weak. It is only on the basis of property rights and the sanctity of contracts that we can rely on the benevolent effects of the invisible hand. Crony capitalism robs the unconnected and rewards the connected, who you know matters more than what you know.

Overall it is a great thing and I would support the proposition that not a single piece of land should be acquired for industrial units. Units at industrial estates should be auctioned off instead of being leased for 99 years.

CAG has finally woken up and like the proverbial Kumbhakarna is wreaking havoc on the established order. One must also analyze the media. Was it mere incompetence that they had to wait for a CAG report to start crying wolf now?

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* Aditya Dash  is the vice president of the Seafood Exporters Association of India (Odisha region). The views expressed here are personal. He may be contacted at [email protected]