Land Titling: Empowering people, capitalizing assets

An interesting new law aimed at simplifying land titles and land records, has been proposed by the government. The draft of the Land Titling Bill 2010, is now on the website of the Department of Land Resources.

In the following article I look at the some of the problems in laws and regulations governing land, and assess the possible impact of the new proposal. I also suggest a few key points that might make this innovative law really transformative one. A version of this article was published in the Wall Street Journal Online, under the title "India lands in a mess", on July 13, 2010. Tthe proposed property-rights bill could have far-reaching, positive implications for the economy.

Bollywood star Amitabh Bachhan cannot buy a piece of farm land outside Mumbai, the city he made his home 40 years ago, because he has first to prove that he or his family are farmers in his home state of Uttar Pradesh. A businessman ended up paying twice for a piece of land in a Himalayan mountain village in Uttarakhand because he discovered he had originally bought it from someone who didn’t actually own the land. A man in Delhi sold his ancestral property without the consent of other members of the family.

These are not isolated instances, but a reflection of the dismal state of land laws and records in India today. As with many other economic dysfunctions here, blame politics: Since independence in 1947, policy makers have mounted a steady assault on property and land rights in the name of equitable distribution and protection of the poor.

Today, the labyrinth of bureaucracy makes it hard to realize property values, condemning landowners to poverty and making land artificially scarce. The system also breeds fraud: According to some estimates, 80% of cases in the lower judiciary are related to land disputes and fraud. The mafia, unscrupulous developers and their political patrons dominate the real-estate business.

Thankfully, democracy has struck deep roots in India, and citizens are beginning to grasp the symbiotic relationship between democracy and property ownership. Over the past decade, policy makers have been forced to address growing protests against land displacement and alienation. The Forest Rights Act in 2006 attempted to recognize the land rights of one of the most marginalized populations in the country—the 80 to 90 million indigenous tribal people who largely continue to live in the vicinity of forests.

While the implementation of this law has yet to gather momentum, another law has recently been proposed by the government to help give the people clearly defined land titles. The Ministry of Rural Development has recently drafted the “Land Titling Bill 2010” to encourage states to adapt similar legislation at the provincial level. The ministry has extended the deadline for public comments to August 31.

The draft Bill introduces title guarantee principles practiced in many parts of the world. It tries, for instance, to address the problem of presumed title. Under current law, when land is contested lawyers have to try to dig up the chain of past titles to prove ownership. Between the poor and corrupt land-record system and incredibly slow judicial process, this is a daunting task.

The Bill proposes a title guarantee system and indemnification. This means that a land holder granted conclusive title to his property by the State will have an indefeasible right over this property. If anyone contesting this title can come up with evidence to the contrary within a specified timeframe, the latter claimant would be compensated from a title guarantee fund for loss of his title, but the title would not be restored to him. The basic goal is to help clean up the land records and begin with a relatively clean slate.

While the goal is very laudable, the devil lies in the detail. The Bill seeks to digitize land records and proposes to complete the process in five years. Many states have already made significant progress in digitizing existing land records. But there is a significant difference between what is actually on the ground today, and what was on the old records. Rather than emphasizing the need to make the records reflect the reality on the ground, the Bill proposes to keep both paper and electronic records. This could easily open the door for further fraud.

Also, given there are estimated over 400 million individual properties, it would be impossible to document claims and clean up the records through the administrative machinery alone. It is imperative that people participate in this process actively, not just because of the volume, but also to legitimize the whole process.

Then there’s the problem of tackling corruption, which mostly surfaces in transaction costs like stamp duties and registration fees. State governments tend to view these levies as lucrative sources of revenue. But a number of expert committee reports over the past two decades have shown that abolishing these levies would not lead to any revenue loss. Under the current system, apart from rampant under valuation, there is a proliferation of transactions using power of attorneys, and camouflaging the sale as loan, thereby completely bypassing the tax net. Typically, in major cities, price of property is split with about 60% expected to be paid in cash.

The Bill also raises the problematic issue of property valuation. But valuation is function of zoning and land-use regulations. The same piece of land will have a very different value when it is classed as agriculture than if it is allowed to be used for housing, industry or other commercial purposes. Farmers in Singur were offered about three times the then prevalent agriculture land price for the land acquired by the West Bengal government for the Tata Motor’s showcase Nano car plant. But with the prospect of land being allowed to be converted from agriculture use, the price of land had shot up ten fold in the vicinity. No wonder that the land owners were agitated at the role of the state government as land broker.

According to a national survey in 2006, about 40% of Indian farmers would like to sell their land and move to more lucrative occupations, but can't find buyers because of archaic laws regarding farm land. Likewise, a survey this year found that about 40% of people in urban areas live in slums. Again restricted supply of land has meant that there is no supply of affordable housing and economic avenues for the poor.

Constitutionally, land is a state subject, and therefore political leadership is needed to have the states adopt such a progressive law in the provincial legislatures. There are quite a few examples of model laws at the national levels, which have been orphaned by the states, as in case of agriculture reforms.

India’s policy makers have clearly identified a critical area for reform. Poverty in India isn’t due to a lack of access to capital, but to people’s inability to realize the value of their most prized asset—land—and to put that money to its optimal use. The beauty of such reforms is that they do not require major financial commitment, only a political realization of the significance of recognizing what is already happening on the ground. The deliberations over the coming months could determine whether this legislation will transform India or merely remain a piece of paper that scores high on intention, but fails in practice.