Indian Land Deform; Amid an economic crisis, Delhi makes it harder to invest

Updated September 2, 2013, 8:28 p.m. ET

Indian Land Deform

Amid an economic crisis, Delhi makes it harder to invest.

Someone should tell New Delhi that when sensible leaders talk about not letting a crisis go to waste, they mean seizing the opportunity to enact pro-growth reforms. Instead, as capital flees and growth slips again, Indian politicians last week passed a land acquisition bill that will hurt farmers, hinder investment and increase corruption. India’s current system of land laws, largely unchanged since 1894, is certainly in desperate need of a revamp. Woefully incomplete government land registries make it hard for anyone to establish a clear title to property, especially in rural areas. Attempts to buy land directly from owners can take years as the notoriously inefficient courts grapple with the resulting litigation.To speed up the process, buyers—including companies such as Posco and Tata—lean on local governments to use their eminent domain authority to seize land for commercial use. This is often just as troublesome. Companies and governments end up embroiled in sometimes violent disputes over the compensation to owners. The influence this gives officials over land decisions is an open invitation to corruption.

Yet the reform Delhi contemplates now is the opposite of what the country needs. Rather than improve the land registry and speed the resolution of property disputes in the courts, Delhi wants even more government intervention.

To address concerns that rural landowners are paid too little for their properties, the bill mandates that a buyer, whether government or private company, pay four times the market value of the plot. If strictly applied this would deter many investors, since a new factory or other use would need to produce a sufficient return to justify such an enormous premium on land acquisition.

Even worse, it’s unlikely to be strictly applied. Already, many buyers and sellers report inaccurate price data to the government. This is likely to become more of a problem as the stiff premium requirement increases the incentive to fiddle the numbers.

The bill also creates a complex system for vetting the “social impact” of development that would result from a land sale. This will empower a long list of bureaucrats, not to mention neighbors, activists, sociologists, economists and environmentalists, to nix land deals. The temptations to corruption in such a system will also be enormous.

With only nine months to go until the next election, perhaps it’s not surprising that members of both the ruling Congress Party coalition and its Bharatiya Janata Party opponents supported what is being pitched as a “pro-farmer” measure. But in recent elections, economic growth has started to become a populist issue too. When voters notice how such policies dent growth, real land reform may begin.