Indian Economy, 5th edition (99 page)

The National Land Records Modernisation Programme (NLRMP), started in 2008, aims at updating and digitising land records by the end of the Twelfth Plan. Eventually, the intent is to move from
presumptive title
(where registration of a title does not imply the owner’s title is legally valid) to
conclusive title
(where it does). Important points related to this process may be summarised as follows:

a.
Digitisation will help enormously in lowering the costs of land transactions, while conclusive title will eliminate legal uncertainty and the need to use the government as an intermediary for acquiring land so as to ‘cleanse’ title.

b.
Given the importance of this programme, its rollout in various states needs to be accelerated. Easier and quicker land transactions will especially help small and medium enterprises that do not have the legal support or the management capacity that large enterprises have.

c.
Prohibitory
land leasing norms
raises the cost to rural-urban migration as villagers are unable to lease their land, and often have to leave the land untilled or leave a family member behind to work the land. Lifting these restrictions can help the landless (or more efficient landowners) get land from those who migrate, even while it will allow landowners with education and skills to move to industry or services.

d.
Compulsory registration of leaseholds and of the owner’s title would provide tenants and landowners protection.

e.
Of course, for such a leasing market to take off, owners should be confident that longterm tenancy would not lead to their losing ownership. With a vibrant leasing market, and clear title, there should be little reason for not strengthening ownership rights.

f.
For large projects with a public purpose – such as the proposed National Industrial and Manufacturing Zones, which will facilitate the setting up of small and medium enterprises, large-scale land acquisition may be necessary.

g.
Given that the people currently living on the identified land will suffer significant costs including the loss of property and livelihoods, a balance has to be drawn between the need for economic growth and the costs imposed on the displaced.

h.
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill 2011, currently before Parliament, attempts to draw such a balance. As experience is gained with large-scale land acquisition, the institutions set up by the bill can be fine-tuned to achieve its aims.

i.
Finally, encouragement needs to be given to land readjustment schemes, where when an area is identified for development, owners participate by giving up some of their land for infrastructure creation, but get back the rest, with the benefit that its value is enhanced by the infrastructure. Small and medium enterprise clusters can benefit especially from such schemes.

j.
Given that large-scale land acquisition is still at a nascent stage, central schemes should allow room for states to experiment and should be modified, the light of the experince of states.

This measure will also create a conducive environment for ‘corporate’ and ‘contract’ farming which is not picking up due to absence of a proper ‘land-leasing’ norm in the agriculture sector. But then the ‘labour law’ reform will also be needed which will benefit the business and industries, too.

The major
non-labour impediments
for a small business to become formal and grow large, as well as some steps the government is taking have been highlighted here, there is evidence that these constraints affect industrial performance. After classifying industries according to their intensity of use of infrastructure, or dependence on external finance, it has been found out
15
:

i.
that post delicensing, industries more dependent on infrastructure, grew less as compared to industries which are not as dependent on infrastructure; and

ii.
the gain in manufacturing-sector output in these industries has been especially small in states with inferior infrastructure.

iii.
that industries more dependent on external finance have witnessed slower growth as opposed to those less dependent on external finance, and have fared much worse in terms of new factories, employment generation, as well as new investment.

Therefore, there is need to take steps for improving infrastructure, access to finance, as well as the overall business environment. It is hoped that massive infrastructure projects like the
DMIC
(Delhi-Mumbai Industrial Corridor) will provide relatively light regulation, and heavy infrastructure, where businesses have easy access to the land they need and workers can live in a safe healthy township (see the next sub-title
‘The DMIC’
).

The DMIC

Conceived by the Ministry of Economy, Trade and Industry (METI) of Japan and the Ministry of Commerce and Industry (MoCI) of India, the DMIC seen as an example of India’s ‘Integrated Approach to Industrial Growth and Development’. This is being developed by the Government of India with a view to using the high-capacity western Dedicated Freight Corridor as a backbone
for creating
a global manufacturing and investment destination. The project seeks to develop a series of futuristic infrastructure-endowed smart industrial cities that can compete with the best international manufacturing and industrial regions. The
master plan
has a vision for 24 manufacturing cities. Potential production sectors include general manufacturing, IT/ITES components, electronics, agro and food processing, heavy engineering, pharmaceuticals, biotechnology, and services. Total investment is pegged at $90 billion.
Special features
16
of the the Project are as given below –

Possible Socio-economic Impact:
Its Influence Area of 436,486 sq. km is about 13.8 per cent of India’s geographical area. It extends over seven states and two union territories, viz. Delhi, Uttar Pradesh, Haryana, Rajasthan, Madhya Pradesh, Gujarat, Maharashtra, Daman and Diu, and Dadra and Nagar Haveli. Around 17 per cent of the country’s total population will be affected. The project goals are to double employment potential in 7 years, triple industrial output in sector on a sustained basis over next three years.

Urban Governance:
Its innovative urban governance framework corporatises the urbanisation process. The central government will create a corpus fund, the ‘DMIC Project Implementation Revolving Fund’, as a trust administered by a board of trustees. The fund will contribute debt and equity to the SPVs (Special Purpose Vehicles) on a case-by-case basis. Land will be made available by the state government. The city SPVs will be vested with the responsibilities of planning and development and the power to levy user fees. The SPVs are to be companies under the Companies Act. The valuation increases from urbanisation and development will accrue to the city-level SPVs, and will be reinvested in the cities. The initial construction of the cities will be done through project managers with global experience, who will control, monitor, review, and supervise the detailed engineering.

Financing:
Its trunk (basic) infrastructure is unlikely to be commercially viable that is why it would require government funding. Such internal infrastructure projects include land improvement, road works, earthworks, sewerage, storm water drainage, flood management, and solid waste management. Once such infrastructure is in place, the subsequent additions to the cities will be commercially viable and can be implemented through public private partnerships (PPPs). For major infrastructure activities such as power plants, integrated townships, and highways, PPP projects are planned. Various sources of funding have been planned as multilateral, bilateral, and domestic government.

Physical Infrastructure:
The Multi-modal High Axle Load Dedicated Freight Corridor (DFC), ‘a high-capacity railway system’, is at the heart of the infrastructure. It will cover 1483 km and will have nine junction stations along which other railroad networks will connect allowing the system to extend its reach across a wide area. Other infrastructure plans include logistic hubs, feeder roads, power generation facilities, up-gradation of existing ports and airports, developing greenfield ports, environment protection mechanisms, and social infrastructure.

Industrial Infrastructure:
It seeks to upgrade existing industrial clusters and also develop new industrial facilities – to be developed on the concept of ‘node-based development’, based on Investment Regions (IRs) and Industrial Areas (IAs). These are proposed as self-sustaining industrial townships with world-class infrastructure including domestic/international air connectivity, reliable power, and competitive business environment. IRs will have a minimum area of 200 sq. km and IAs 100 sq. km. In all 24 manufacturing cities (IRs and IAs) are planned. Seven major manufacturing cities are being planned for the first phase. These will serve as the key nodes for overall growth and development.

Power Infrastructure:
Power for the industrial and residential zones is an essential requirement. The provision of world class power infrastructure will require ‘twenty-four hour’ good quality supply. The major power inputs will come from six gas-based projects of around 1000-1200MW each. Other power options include the use of renewable energy sources integrated through a smart grid.

Skill Development:
The skill-building strategy underlying the DMIC is based on a ‘hub-and-spoke’ model in which one Skill Development Centre in every state with subsidiary institutions linked to it. Curricula will be based on the types of industries located in the region and identified regional strengths.

Land Acquisition:
Land acquisition appears to be a major challenge. Different state governments are adopting diverse approaches for dealing with the issue. Gujarat has a ‘land-pooling’ model whereby 50 per cent of the land is acquired while the remaining 50 per cent is left with the original owners giving them a stake in the upsides generated by land monetisation. Maharashtra allows for ‘negotiated purchase’ involving various stakeholders. In Haryana and Rajasthan, trunk and industrial infrastructure are created by the state governments but private developers directly participate in the other activities. The value increase is captured by the states through development fees. Furthermore, in the initial DMIC master-planning process, the attempt was made to identify large, easy-to-acquire land parcels that were either barren or government owned.

Environmental Clearances:
The master-planning process was put forward for a general Terms of Reference clearance, which has already been obtained. This has reduced the compliance load for individual project clearances. The individual projects will now need to get their draft impact assessments cleared by the respective state pollution control authorities.

Water Management:
As the corridor passes through relatively arid parts of the country, the industrial hubs are to have integrated water resource management plans drawing upon lessons from countries such as Singapore. It is proposed to make each manufacturing city self-reliant and sustainable in terms of its water requirements. Recycling is a major strategy in all the industrial nodes.

Steps to Improve Business Climate

The business climate of India has not been conducive enough for the arrival, growth and winding-up of the MSMEs. By effecting some regulatory changes, the business climate for MSMEs can be improved in a great way which they may be summarised as follows
17
:

Common policy:
There are a vast number of business regulations that often overlap and sometimes contradict each other. A common policy and an institutional architecture overseeing all business regulations will help consolidate and enact changes.

Facilitation:
Establishing independent facilitation and coordination agencies as PPP service companies with mandate from the state government, staffed with specialists and responsible for getting work done through various departments for starting up and running of businesses. These agencies will also help arrange services such as financing, finding raw material suppliers, and marketing products. They will charge a fee for some of the services provided, and be financially selfsufficient.

Simplification of Registrations:
Creating a one-stop online registration system for time-bound registrations for starting a business. The applicant will need to file a single application on the website, with the required information being picked up by each government department. Over time, this process can be extended to other activities such as trading across borders and paying taxes. This will require detailed mapping exercises and setting up of a ‘best practices’ framework.

Easier Compliance after Growth:
Enabling compliance ratings of MSMEs (through ISO-like common standards) and allow easier compliance norms to firms with higher ratings. Easier norms can take the form of simpler procedures (such as self-certification) across government departments. For instance, a company with a good history of tax compliance should be treated as a good citizen when it deals with the pollution control board. Over time, high compliance ratings could also act as a signal to financiers and enable easier access to credit.

Easy Exit:
The arduous process of exit for unsuccessful companies needs to be made simpler, faster, and cheaper.

Transforming Employment Exchanges:
Transforming the 1,000-odd employment exchanges across states into career centres offering counselling, assessments, apprenticeships, training, and jobs.

Improving Statutory Pre-emptions:
Currently for low wage workers in formal employment, the plethora of statutory pre-emptions, especially for provident fund and health insurance, can lead to very low net salary and act as disincentive to formal employment. The value and benefits received from these pre-emptions can be improved by encouraging competition between different pension and health schemes.