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What Sanand tells us about land acquisition

The Supreme Court has quashed the West Bengal government’s acquisition of land at Singur (later leased to Tata Motors), holding it was not for a “public purpose”. Lawyers had argued that “public purpose” did not apply to land acquired for private sector industries. Globally, the legality of acquisition and tax breaks for businessmen has not been questioned, though their desirability often has.

In the past, governments have acquired land at throwaway prices from farmers. As a libertarian, I oppose forced acquisition save in exceptional cases. Top priority should be given to negotiating voluntary sales by farmers, and second priority to leasing rather than acquiring land. Yet for some projects acquisition may be justified because they provide major “externalities”— benefits to the whole population and not just the industrialist concerned. In such cases land acquired should be kept to a minimum, and compensation should include a share of the developed project land, so that farmers become partners in development and not just oustees.

Private industry is accepted globally as a public benefit that creates jobs, revenues and general prosperity. That’s why states offer tax breaks, cheap land and infrastructure to attract industry. These concessions can be excessive, but that’s as true of tax breaks and cash grants as cheap land.

Acquisition for government projects is viewed everywhere as serving a public purpose. But public sector projects are marked by waste, inefficiency and corruption. The few Indian public sector units that have been privatized (like BALCO, VSNL, Hindustan Zinc, Paradeep Phosphates and IPCL) have soared subsequently.

Does the Supreme Court’s verdict imply that these, and all others for which land was acquired, should be wound up, and the land returned to the original farmer-owners? No, old projects should be “grandfathered.”

Tata shifted its Nano plant from Singur to Sanand, Gujarat. Can acquisition of land at Sanand be struck down as not serving a public purpose? Many states competed to attract the plant. Gujarat won by offering cheap land, tax breaks and concessional finance. Can all these be struck down too?

Gujarat has long been highly industrialised but dominated by oil and chemical industries creating few jobs. Narendra Modi as chief minister visualized the Sanand plant as not just a Tata factory but an incubator of auto ancillaries and skills that would make Gujarat a major auto hub with lakhs of jobs, like Delhi, Maharashtra and Tamil Nadu.

Events have vindicated him. The Nano itself was a giant flop, and Tata will have to shift to other models. But the project created many auto ancillaries and skills that have indeed attracted several other auto majors, and converted Gujarat into an auto hub. Tata may have failed but Gujarat has succeeded.

Ford built its first plant in Tamil Nadu but moved to Gujarat in 2015 for its second plant. Honda and Maruti- Suzuki, both of which began with car factories near Delhi, are now building new plants in Gujarat. Maruti-Suzuki will be by far the biggest investor, with an initial capacity of 250,000 cars/year rising to 1.5 million/year with an outlay of a whopping Rs 18,500 crore. AMW Motors has built a heavy truck plant with a capacity of 50,000 heavy trucks per year. Atul Auto, a producer of commercial three wheelers, is planning a second plant near Sanand.

Honda Motorcycle and Scooters India has set up a plant producing 1.2 million Activa scooters per year. Hero MotoCorp is constructing a plant with an initial capacity of 1.2 million two-wheelers, to be raised to 1.8 million. Gujarat will span the full range from two-wheelers to cars to trucks.

The Nano factory initially spawned 41 auto ancillary plants. The number is projected to rise to 350, mostly in the Sanand-Mandal-Becharaji region. The big names include Canada’s Magna International, Germany’s Bosch and Switzerland’s Oerlikon. Old-time tyre-makers Apollo and Ceat have been joined by newcomers like Taiwan’s Maxxis Tire, Yokohama Tyres and MRF.

These successes more than compensates for the failure and likely closure of the state’s first auto plant of General Motors at Halol. This was in any case too small to spark an auto hub. Sanand has the requisite scale.

In sum, forced acquisition is usually wrong, and Gujarat has rightly shifted mainly to negotiated land purchases. But there can be exceptions that justify acquisition, and the auto hub in Gujarat is one such example.

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