Plotting progress political risks of land acquisition are borne by states they need better incentives

Plotting progress political risks of land acquisition are borne by states they need better incentives

The national monetisation pipeline has identified 25 airports run by the Airports Authority of India (AAI) for action over the next three years. Four of them are located in Tamil Nadu – all international airports. GoI’s airport monetisation plan needs to be studied with the TN government’s major industries policy note, 2022-23, to see how the approach can be tweaked to realign incentives between the two levels of government to encourage industrial development. It’s essential because the current airport infrastructure policy doesn’t reconcile political risks to potential rewards of monetisation.

TN’s policy note is an extension of what the previous DMK government suggested during the UPA-1 era. The note says that land forms the major portion of overall project cost. Henceforth, if the state transfers land free to GoI, which subsequently monetises the infrastructure, the state should be entitled to a share of the gains. It’s a sensible suggestion and one GoI should consider. Revenue from infrastructure flows to governments through two streams. One, through taxes, which are split between GoI and states on the basis of the Finance Commission’s recommendations and GST Council’s decisions. Two, through subsequent monetisation of an asset.

It’s the second stream that needs fine-tuning. Often, land is obtained by invoking a legislation to forcibly take over privately-owned property to serve a public purpose. This can sometimes extract a political cost that’s borne entirely by the state government. This risk can be mitigated by giving states a share of the upside arising out of monetisation. A mismatch between risk and reward across the two levels of government has acted as a drag on India’s industrialisation. The UP government’s example is pertinent here. It holds the equity of Noida International Airport incorporated in 2018. After overseeing the land acquisition process, it contracted Zurich Airport to build the airport and then operate it for 40 years. The upside of a potential monetisation will accrue to UP. True, Jewar is a greenfield project and AAI’s are existing airports. But the principle holds.

Separately, there’s a need to re-evaluate mechanisms of awarding compensation when land is acquired. The legislative process is complex and tilts towards the state. Sometimes this results in paltry compensation. On paper, there are redressal mechanisms. However, it’s almost impossible for an individual to get redress. Tweaks in laws allowing acquisition can help mitigate resistance to acquisition. The doctrine of eminent domain needs to be balanced with fairness.