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Dialogue on Land, Conflict and Investment Risks in India

Unclear Property Rights and Records put Investment in India’s Manufacturing and Infrastructure Sectors, and its Financial Sector at Risk

With over 93% of natural resource development in emerging economies at risk for land conflict, the global land investment experience has key lessons for India

India’s growing energy, industry, and development needs require a substantial transformation in land use, impacting millions of customary users of land. To date, India has been struggling to address the challenges arising out of these transformations, as indicated by a rising number of land-related conflicts affecting at least a quarter of the country’s districts. India’s private and public sectors, which need land for their industry, infrastructure, and service sector operations, as well as its financial sector, are bearing the brunt of project delays and non-performing assets linked to land rights conflicts. Global scale studies clearly demonstrate that this problem is faced around the world and that there is little appreciation of the investment risks posed by insecure and unclear land rights of local communities.

At this Dialogue hosted by the NCAER in conjunction with the Washington, DC-based Rights and Resources Initiative (RRI), two framing presentations were: 1) Review of global empirical evidence exploring links between land rights, conflict, and investment risks; and 2) Review of empirical evidence from India related to land, conflicts, and risks to investors and large financial system. A panel of experts debated the issues and participants (both present and virtual) joined the discussion.The issue is not unique to India. Unresolved conflicts over land tenure have been shown to significantly increase financial risk for companies in the infrastructure, mining, agriculture and forestry sectors across the world, according to TMP Systems, an international consultancy that has carried out extensive work on quantifying the risk related to land rights in large-scale projects.

TMP Systems’ analysis last year spanning almost 73,000 commercial natural resource developments in eight countries, found that over 93 percent of the developments were inhabited. It is currently analyzing 262 land tenure case studies in 30 countries, showing clear and consistent material impacts of unclear land rights on assets including dams, farms, mills, mines, orchards, and timberland. “It does us no good to attract investment in a new rice mill or railroad line only to watch the mill burned down or the road blockaded because their operators failed to engage the people already living in the area,” said Mr Lou Munden, founder of TMP Systems,. “Yet it is also unacceptable to see community tension exploited for publicity or political capital, particularly where progress will benefit communities.”

“We consider it vital that often-unrecognized local populations are engaged early on as a kind of counterparty,” Munden added, noting that consent and cooperation by local communities allows for quicker implementation and smoother project operation. He also highlighted the need for land rights clarity to avoid risk which stymies investment globally.

The Dialogue was opened by the Honorable Union Minister for Rural Development, Shri Chaudhary Birender Singh. Under his leadership, the Ministry’s Department of Land Resources is spearheading the work on computerization of land records, surveys and re-surveys, and registrations, with the goal of implementing all three activities in each district and covering all districts by the end of the 12th Plan (2012-2017), except where cadastral surveys are being done for the first time. Minister Chaudhary Birender Singh noted in his Keynote Address “By 2050, the land-population ratio will decline four-fold in India, making it amongst the most land-scarce countries. To meet this challenge, India’s public policy should strike a balance between justice for its land-losers and concerns related to the viability of development projects. It is in everybody’s interest to adequately compensate and rehabilitate land losers in involuntary land acquisition so that besides economic viability, social sustainability is also ensured.”  He also added, “The other question that we need to focus on is proactively creating land markets.  Deep, well-functioning, liquid land-markets, whether for outright sale and purchase or for lease and tenancy and other large numbers of easement rights, need to be a priority for public policy.”

An evidence-based dialogue such as this is much-needed to resolve one of the more contentious issues facing the development of badly needed infrastructure, manufacturing, and productive jobs in India today,” said Dr Shekhar Shah, Director-General of NCAER. “The issue of rational and fair land acquisition affects not just corporations or investors and the financial sector, though that in itself is important enough, but also has long-term impacts for India’s economy and whether it can reap its demographic dividend by generating enough growth and employment opportunities for its large numbers of rural and urban young men and women entering the labor force.”

Conflicted land projects are an underestimated source of investment risk for India’s financial sector, which currently holds non-performing assets and at-risk loans valued at ₹5.5 trillion (US$84 Billion). A study released by Rights and Resources Initiative (RRI) in April, 2015, called for an evaluation of underlying regulatory conditions for development projects. Social conflict—and the investment risk it triggers—could be minimized in these projects by involving local communities earlier in the development process. “The assumption that land without clear ownership is uninhabited is a colonial legacy,” said Mr Arvind Khare, Executive Director of RRI. “There are communities living almost everywhere, and in many cases, they have been living there long before governments came in the picture. It is illogical to not consult these communities on investments involving their traditional lands. It is even more illogical to believe that these communities are against development – in fact, they want development and can indeed be the drive behind development.”

The TMP Systems report also established broad patterns of conflict. One pattern showed that more than three quarters of all conflicts examined occur at the start of a project or when the project expands. Instead of involving local communities at the inception of a project that involves their land, governments and corporations often reach out to them after the plans have been drawn up, begetting conflict that could have been averted.  These conflicts impact emerging market investors in sectors as diverse as mining, agriculture and hydropower, as well as cross-cutting investors like sovereign wealth funds and banks; commodities-driven corporations as they plan their investments in mines, mills and acreage; and insurers who guarantee the performance of those assets through various kinds of coverage.

“Property rights and records in many emerging markets are unclear to the point that ownership of land can be granted by governments and accepted by investors without the knowledge or consent of the people who live or depend on that land,” said Dr. Chris Anderson, principal of Yirri Global LLC and a board Member of the Open Contracting Partnership. He warned companies against exacerbating the risks on such projects. “Far from being an ‘externality,’ land conflicts with local communities can be a real threat to stable returns, in fact, to the whole enterprise and investment, and warrant early proactive attention rather than passively hoping that these issues will  ‘get cleared up’ over time,” he said. Dr. Anderson, who was formerly with the global mining corporation Rio Tinto, is a part of the Interlaken Group, a cross-sector collaboration including international companies such as Unilever, Nestle, Coca-Cola, and Olam. The Group was formed to help companies implement advice from the UN’s Food and Agriculture Organization on respecting land and forest rights. It has just released a new set of practical guidelines for companies and their investors to integrate this advice in their projects.

Recognition of community rights on such lands through laws like India’s landmark Forest Rights Act would transform rural livelihoods as well as advance long-term development. The Central Government has recently directed Bihar, West Bengal, Himachal Pradesh, Karnataka, Kerala, Uttarakhand, Telangana, Uttar Pradesh and Jharkhand to implement the Act.This move came in the wake of Prime Minister Narendra Modi’s directions to the Ministry of Tribal Affairs earlier this year to implement the Act in a “campaign mode” and rapidly give land rights to tribals.  An earlier RRI analysis noted that the Act’s implementation was vital for the survival and livelihoods of around 150 million of the country’s poorest and most marginalised citizens. Major examples of conflict arising from lack of formal community rights on customarily used rural and forest lands include Vedanta Aluminum Ltd., which was unable to develop an open cast bauxite mine in Niyamgiri due to fierce opposition by the local Dongria Kondh tribe, and POSCO’s ill-fated steel plant in Jagatsinghtpur.

“Industrial or infrastructural development fails to lead to equitable economic growth when it excludes the economic rights of local inhabitants,” concluded Khare. “The two are inherently tied, and true economic development must empower and enrich everyone involved. Only by securing the legal rights of India’s tribals and local communities on land and forests can we ensure that they will share in the prosperity the Government is trying to achieve for India.”

The Dialogue shared and reviewed empirical evidence from overseas and India showing deep links between land ownership conflict and financial risk for companies and investors. The Dialogue participants included senior government officials and regulators, private sector representatives, economic researchers, and financial analysts.

The Dialogue was webcast live for online viewers from across the globe.

State of the Economy Seminar August 2015

NCAER’s annual model predicts that GDP growth rate (GDP market prices at 2011–12 prices) will grow at 7.5 per cent for 2015–16.

NCAER Team presented the Quarterly Review of the Economy at a seminar held on August 18, 2015. The review covers the performance of the Economy in the first quarter of 2015-16 and forecast for the year head.
The seminar commenced with the opening remarks from Rajesh Chadha, followed by presentation on the State of the Economy by Bornali Bhandari & Mythili Bhasnurmath. Invited as discussants for the seminar, Sabyasachi Kar, Associate Professor, IEG and Devendra Kumar Pant, Chief Economist & Senior Director (Head – Public Finance) India Ratings & Research, presented some very interesting annotation and took on the discussions. This was followed by a presentation by Sonalde Desai on “MGNREGA: A Catalyst for Rural Transformation”, a recently released report by NCAER and University of Maryland

Key Highlights:

In the agricultural sector, performance of monsoon rainfall has been extremely satisfactory in the month of June, however, during the month of July there was a slowdown in rainfall activity. Notwithstanding this the deviation from actual rainfall from the normal during the first half of the monsoon season is barely 3.1% (deviation based on rainfall indices computed on the basis of un-irrigated area under foodgrains as weights). As a result, the sown area under all Kharif crops is up by 5% as compared to the corresponding period of last year, led by an increase in area under cereals, pulses, and oilseeds. The outlook for the second phase of monsoon season, however, remains mixed due to differences in forecasts made by the official and private forecasting agencies and much will depend on how monsoon rainfall progresses going forward.

Index of Industrial Production (IIP) registered 3.2% year-on-year growth in the first quarter of 2015–16, maintaining its growth momentum from the fourth quarter of the last fiscal at 3.3%. It was lower than the 4.5% growth in 2014-15:Q1. However, looking at deseasonalised quarterly data, IIP registered 2.1% quarter-on-quarter growth in 2014-15:Q1. It grew negatively in the next two quarters before reviving growth in the fourth quarter at 2.0%. It continued to grow at 2.0% in the first quarter of the current fiscal. These indicate that India is growing but not at higher rates than last year.

The lead indicators of the services sector also indicate trends similar to the last quarter of the previous fiscal year whether it is tourist arrivals, revenue earning goods traffic by railways, cargo handled at major ports, new telephone connections and growth in aggregate deposits. Though, domestic air passenger traffic shows double digit year-on-year growth (19.5%) in 2015–16:Q1.

Inflation rates show a distinctive downward trend driven by fall in global commodity prices and weak demand. Satisfactory rainfall in the first half of the monsoon season has also kept food prices low except for pulses. However, as reported, the RBI Inflationary expectations have edged towards double digits in June 2015. Further, there is an upward movement in the change in the rate of inflation in the first quarter, which if not addressed can potentially affect inflation through higher expectations.

Thus, key policy rates were left unchanged amidst higher household inflationary expectations, slower pace of domestic economic recovery, and uncertainties in the global markets.

On the fiscal sector, revenue receipts have increased in the first quarter of the current fiscal, buoyed by increases in indirect taxation. Capital account plan expenditure has risen in the first quarter of the current fiscal signalling that the government is on track in tackling the infrastructure deficit in the country. Fiscal deficit as a percent of GDP has already reached approximately 50 per cent of its budget estimates, similar to last fiscal.

In sum, satisfactory rainfall in the first half of the south-west monsoon season if sustained may help revive rural demand. Lower inflation due to lower commodity prices and lower food inflation may spur demand. The indicators from the first quarter suggest that agriculture, industry and services are continuing to grow at same or almost similar rates as was the case in the fourth quarter of the previous fiscal. The turbulences in the world economy though add elements uncertainty to the growth path of the Indian economy. Overall, India is predicted to achieve a marginally higher rate of growth of 7.5% than last year (7.3%).

Report on “MGNREGA: A Catalyst for Rural Transformation”

MGNREGA: A Catalyst for Rural Transformation, a report published by NCAER and University of Maryland was released at a function held at the Vigyan Bhawan, New Delhi today.  The event organised in collaboration with the Ministry of Rural Development (MoRD), Government of India, and UNDP India was presided by Dr Bibek Debroy, Member, NITI Aayog, Shri Amarjeet Sinha, Additional Secretary, Ministry of Rural Developemt, Govt. of India and,  Shri J K Mohapatra, Secretary, Ministry of Rural Development, Govt. of India.  Aparajita Sarangi, Joint Secretary, MoRD delivered the welcome address, followed by remarks from Dr Shekhar Shah, Director-General, NCAER. Dr Sonalde Desai, Senior Fellow, NCAER gave a presentation on the report to a house full of audience, followed by an insightful Q&A session.

‘The Mahatma Gandhi National Rural Employment Guarantee Act has been remarkably successful in improving the welfare of workers who participate in the programme. But its reach has been limited due to the lack of work in some of the poorest areas. Using unique data from the India Human Development Survey, a large, national survey comprising over 28,000 rural households, conducted twice by researchers from the NCAER and the University of Maryland before (2004-05) and after (2011-12) the implementation of MGNREGA, this report concludes that MGNREGA reduces poverty and empowers women but work rationing limits its impact’.

At least 25% of the decline in poverty since 2004-5 for participating households can be attributed to participation in MGNREGA. These households are also less likely to have to rely on moneylenders for loans and more likely to have children with higher levels of education. The principal author of the study, Professor Sonalde Desai, Senior Fellow at NCAER and Professor of Sociology at University of Maryland, notes, “The most striking impact of MGNREGA participation is on women. Increasingly women dominate MGNREGA work. And for more than 40% of them, MGNREGA is their first opportunity to earn independent cash income. Not surprisingly, this increases their power within the household and improves their conditions, including access to health care.”

However, the positive effect of MGNREGA is limited by very low access to work in some of the poorest states such as Bihar and Odisha. Only 24.4% of rural households participate in MGNREGA nationwide, and nearly 70% of the interested households cannot participate due to lack of work. Most important, about 70% of households below the poverty line, do not participate. Implementation challenges lie at both the state and the local level.

In states with strong programmes, such as Chhattisgarh, nearly 60% of the poor participate in MGNREGA infrastructure projects. Contrastingly, in states with weak programmes such as Bihar, barely 11% of poor households participate. It is particularly important to ensure better implementation at the local level—both to improve MGNREGA access and to improve the quality of infrastructure.

Dr Shekhar Shah, Director-General NCAER, noted, “As India continues its march towards economic prosperity, independent, rigorous assessments of this type will be increasingly required to ensure that public policy and programmes stay on the right track.”

The full report is available here.

The India Policy Forum Lecture 2015

Economic Policies and Outcomes in India: A Retrospective

The 2015 India Policy Forum Lecture by Professor Arvind Panagariya presented a  retrospective of how India’s economic policy framework has evolved over several decades and the outcomes this has produced.
In a recent communication describing his plans for the Lecture, Panagariya has noted “…For the sake of argument, if India’s per capita income in 1950-51 is taken to be $1, it would have risen to $2 by 1990-91 and to $6 by 2013-14.  In other words, per capita income doubled in the first 40 years of India’s development, but then tripled in a much shorter period of the next 23 years. Alongside this quickening of growth, poverty fell by only a modest amount prior to 1990-91, but fell much more sharply during 2004-05 to 2011-12. What accounts for these massive differences in economic outcomes before and after 1990-91? Why did India lose out in the early decades of its independence and what has led to its rise in more recent decades?”
This very interesting seminal review of India’s economic development by the head of NITI Aayog, India’s erstwhile Planning Commission recast in January 2015 by the government of Prime Minister Modi attracted a large audience. In response to a lively and engaged question and answer session that followed the lecture, Prof. Panagariya gave his views on a wide ranging topics on the prospects of India’s economy and stressed on the importance of a Policy Framework to be in place.
The IPF Lecture is part of an annual economic policy discussion event organized by NCAER in cooperation with the Brookings Institution. It comprises of an annual international conference, the IPF Lecture and the IPF Volume which is published by SAGE.
Arvind Panagariya is Vice-chairman, NITI Aayog, and has been the Jagdish Bhagwati Professor of Indian Political Economy and Director of the Columbia Program on Indian Economic Policies at Columbia University. Until his appointment to NITI, he was a Non-resident Senior Fellow at NCAER and delivered NCAER’s Second C D Deshmukh Lecture in February 2014. Panagariya has also been the Chief Economist of the Asian Development Bank and Professor of Economics and Co-director of the Center for International Economics at the University of Maryland, College Park. He has worked with the World Bank, IMF, WTO, and UNCTAD in various capacities.
Panagariya has written and edited more than a dozen books. His book, India: The Emerging Giant (2008) was listed as a top pick of 2008 by The Economist magazine. The Economist has described his latest book (with J. Bhagwati), Why Growth Matters (2013), as “a manifesto for policymakers and analysts.” Until his appointment to NITI, Panagariya was co-editor of NCAER’s annual India Policy Forum, the highest ranked Indian economics journal based on RePEc citation counts.
Panagariya has a PhD in Economics from Princeton University. In March 2012, the President of India honoured him for his contributions in the fields of economics and public policy with the Padma Bhushan.

The India Policy Forum 2015

The India Policy Forum, in its 12th continuous year in 2015, is organized by NCAER in New Delhi in July every year in a long-running partnership with the Brookings Institution in Washington DC. Its objective is to promote rigorous empirical research on Indian economic policy with commissioned papers, an annual two-day conference leading to a volume, the India Policy Forum Volume published by SAGE, and the annual IPF Lecture. The IPF explores and provides insights on India’s rapidly evolving and often tumultuous economic transition and the underlying policy reforms that are driving it.

The 2015 IPF held on July 14-15 commenced with Keynote Remarks by Rajiv Mehrishi, Finance Secretary, Ministry of Finance, Government of India and a member of NCAER’s Governing Body. The IPF featured an exciting mix of five papers and a Policy Roundtable on “The Challenge of Financing Infrastructure in India”, moderated by Suresh Prabhu, Union Minister for Railways, Government of India. A highlight of the 2015 IPF was the IPF Lecture delivered by Arvind Panagariya, Vice-chairman, NITI Aayog (and until his appointment in January 2015, a Nonresident Senior Fellow at NCAER), on “Economic Policies and Outcomes in India: A Retrospective”. Please see the detailed 2015 IPF Program, which also has videos of the sessions and the associated papers and slide presentations.

The topics that IPF papers have dealt with over the years cover a broad sweep of macro, international, and sector challenges that the Indian economy has faced and the many successes and failures of policymaking over the past several decade. IPF research papers are invited on the strength of their policy-relevance and represent some of the best empirical research on India being done globally. The annual IPF Volume is currently the most highly ranked economics journal out of India based on RePEc citation counts. As interest and research on Indian economic policymaking grows, a far cry from the situation in 2004 when NCAER launched the IPF, our future plans include a call for papers.

Two international research panels of India- and overseas-based researchers with an abiding policy interest in India supports this initiative through advice, active participation at the annual IPF Conference, and the search for innovative papers that promise fresh insights. An international Advisory Panel of distinguished economists provides overall guidance. Shekhar Shah, Arvind Panagariya and Subir Gokarn are the editors of the 2014-15 volume, released at the IPF 2015 by Arvind Panagariya.

The IPF has been generously supported by a select group of Indian corporate partners that over the years have included the Tatas, HDFC, Reliance Industries, SBI, HSBC, IDFC, and Citibank. This support reflects their deep institutional commitment to rigorous high-quality policy research in India that helps promote informed policy debates and sound, evidence-based policymaking.

IPF Advisory Panel: Shankar N. Acharya, Isher J. Ahluwalia, Montek S. Ahluwalia, Pranab Bardhan, Jagdish Bhagwati, Barry Bosworth, Willem H. Buiter, Stanley Fischer, Vijay Kelkar, Mohsin Khan, Anne O. Krueger, Ashok Lahiri, Rakesh Mohan, Arvind Panagariya, Raghuram Rajan, Shekhar Shah, T.N. Srinivasan, Nicholas Stern, and Lawrence H. Summers.

IPF Research Panel: Abhijit Banerjee, Kaushik Basu, Surjit S. Bhalla, Mihir Desai, Shantayanan Devarajan, Esther Duflo, Subir Gokarn, Jeffery S. Hammer, Vijay Joshi, Devesh Kapur, Kenneth M. Kletzer, Robert Z. Lawrence, Rajnish Mehra, Dilip Mookherjee, Karthik Muralidharan, Urjit Patel, Ila Patnaik, Indira Rajaraman, M. Govinda Rao, Ajay Shah, Nirvikar Singh, Rohini Somanathan, Tarun Ramadorai, and Arvind Virmani.

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