Thursday, November 18, 2010

Simply need a sound private property right

A professor from DSE comes close to say that there is a need for private property right but he does not say it directly, why, because they do not believe in it!

He writes:

The new law must create strong incentives for companies to buy land directly from owners.

What incentive is worth more than a sound private property right? However, his analysis has some interesting insights:

  • Generally, acquisitions for companies have been undertaken under Part II of the Act. This part concerns acquisitions by government entities for public purpose. It does not impose the above restrictions on acquisition for companies, but requires the compensation to be paid out of public funds. In order to justify acquisition for companies under this part, states have been contributing nominal amounts toward the cost of acquisition. Some governments have gone to the extent of contributing just. 100! Due to such legal ambiguities, states have been able to violate the law with impunity.

  • Ostensibly, partnerships are formed to provide infrastructure and public services such as education and health. In reality, however, excess land is acquired and the company is allowed to use a part of it for real estate projects — partnerships for Delhi airport, and Yamuna and Ganga expressways are a few of the many cases in point. So, the company gets the land it needs and that too without any cost!

  • Since the legal ownership of the land rests with the state, the acquisition, technically speaking, is not for the company. Therefore, the above-mentioned limit on acquisition for private companies, howsoever small, is irrelevant. An increase in compensation rate is also of no avail here, since the cost of acquisition is borne not by the beneficiary company, but by the taxpayer!

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