india corruption scandal shadow economy

India Has Land Crime, Ireland Has Reform Thinkers
property sector svt

Why Land is at the Centre of All Scandals

Against land greed, the law doesn't stand a chance -- except maybe in Ireland. We excerpt two 2012 articles from (1) BBC, Dec 9, on India by A. Srinivas and (2) Ireland's Independent, Dec 2, on SVT by several profs.

by Alam Srinivas and by several Irish economists

Recent estimates indicate that the size of India's shadow economy may vary from 25% to 50% of the country's annual gross domestic product (GDP).

Among the 176 nations ranked in Transparency International's Corruption Perception Index (2012), India stood at 94, which was a lot worse than Brazil and China.

India's property sector is possibly the worst offender. Barun Mitra, the founder and director of the Delhi-based Liberty Institute, has calculated that all the land transactions, including those related to natural resources like mining, generate $20bn (£12.54bn) to $40bn of illegal money each year.

That equals 1%-2% of the GDP.

This is also evident from recent allegations made by activist-turned-politician Arvind Kejriwal about links between the Congress Party president Sonia Gandhi's son-in-law Robert Vadra and the country's biggest real estate developer, DLF.

Despite the huge scarcity of real estate, thousands of owners hoard properties and are reluctant to sell because they expect prices to rise in the near future.

The combination of a demand-supply mismatch and speculative urge provides opportunities for bribery.

Part of the price -- up to 50% in some cases -- is paid in cash to avoid paying tax.

Land records in India are opaque, stored in inaccessible places, and most of the ownership is disputed either in a court of law or because of family fights.

Although every city and town has its master plan, which designates areas meant for agriculture, residences and offices, these can be arbitrarily changed at any given time by the local authorities.

Thanks to such official discretionary powers, there is a tendency among builders, estate agents and powerful individuals to abuse political patronage to change the land use of their properties.

Changing land use from agricultural to commercial can treble and quadruple its price within a few months.

Similarly, there are huge opportunities to buy land in advance near an upcoming highway or metro train track, whose value is likely to multiply once the project comes through.

To complete a sizeable property project, any builder in India has to get almost 60 approvals, produce about 175 documents, and deal with 40 central, state and local government departments.

It may take a builder three to four years to complete the official paperwork and get all the requisite bureaucratic clearances.

There is, therefore, a tendency to pay bribes to politicians and bureaucrats to speed up the process.

To read more

JJS: Governments can make it difficult for one to earn an honest buck. So many turn to earning a dishonest buck. That suggests two things must change. One, government must abandon its role of troll under the bridge exacting tolls for permits, especially when people shouldn’t even have to ask for permission, and instead recovery common wealth to benefit the populace. Two, citizens must abandon the role of troll under the bridge exacting tolls for access to land or resources and instead make money by supplying their labor or capital. Some governments are getting an earful from their citizens who’re promoting a tax to recover some common wealth, i.e., the annual value of surface locations. Check out this Irish letter below.

We the undersigned support the introduction of a property tax based on the unimproved value of all residential sites, and all zoned land, ie the value that has not been created by the landowner, or "Site Value Tax" (SVT).

SVT is the most equitable, efficient, and effective property tax option for the Government. Unlike a conventional property tax that taxes the 'improved' portion of the property, ie the buildings and thus penalises construction, SVT is non- distortionary, creates no economic drag and has minimal adverse effects.

By capturing unearned value at an early stage of the property development process, SVT discourages empty buildings, land speculation, hoarding and over-zoning, and diverts capital and available credit into productive investment and sustainable jobs.

In the long term, an SVT will moderate violent fluctuations in the property market and general economy.

SVT provides a stable base to fund vital infrastructure and services and offers a transparent link between the private benefits of public investment and the source of the investment.

SVT will reduce the property tax burden on homeowners by one-third by spreading the burden on to development land-owning individuals, firms, and banks which were largely responsible for the current crisis.

Peter Antonioni, UCL;
Bill Black, Associate Professor of Economics and Law, University of Kansas;
Dr Micheal Collins, NERI (Nevin Economic Research Institute);
Karl Deeter QFA, (LIAM) dip;
Dr Constantin Gurdgiev, Adjunct Prof at Trinity College Dublin;
Dr Stephen Kinsella, University of Limerick;
Professor Brian Lucey, Trinity College;
Ronan Lyons, Balliol College, Oxford;
Dr Terrence McDonough, Economics, NUI Galway

To read more

JJS: Now why can’t all economists be that sensible?


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

Without Reform, Small Farmers Become Trespassers

Firms Keep Wage Taxes, Don't Pay Profit Taxes

Nobelist Stiglitz Calls for George's Tax

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