Why We Need Well-Maintained Land Records

When economist Hernando de Soto was on a book tour in Indonesia, he decided to prove that it is possible to trace the owners of lands outside the ambit of formal law. He strolled through rice fields to illustrate his point. Whenever he crossed from one field to another, a different dog barked. Dogs knew something which many of the finest minds in that country did not know.

It is in this context we should examine the recent reports on land records in Hyderabad's Rangareddy district. In the district, land worth Rs 20,000 crore is entangled in legal battles because records are vague. Nearly 17,000 acres of government land in the district is either usurped by encroachers or locked in litigation. Poor maintenance of land records and lack of transparency are among the major reason behind this.

The Rangareddy district is not unique in this aspect. In many cases, people end up paying twice the value of the property because the ownership of an asset is often contested. According to Institute for Liberty and Democracy in Peru, the real estate assets of the poor in developing countries like India is worth $10 trillion. According to some estimates, nearly 40 per cent of India's farmers would like to sell their real estate assets and make a living elsewhere, but the vague nature of property titles does not allow it. In fact, nearly 4-5^th of the disputes in lower judiciary are on land-related disputes.

If you do a mental experiment, the value of formal property titles will become obvious. If someone approaches you to sell a piece of land for a million rupees, even if you find this an extremely lucrative deal, you will be unwilling to buy this piece of property if he admits that he does not have a legal proof of ownership.  You would be hesitant, and probably unwilling even if everybody in the neighbourhood knows that it is his property. Economists like de Soto believe that economic reforms of the early 1990s were not enough to alleviate poverty in India because such fundamental problems were not resolved.

In the US and Europe, this process took place in the 18^th and 19^th century. This has not yet happened in India. The reason is that it is easy to import Western technology into India and other developing countries. de Soto thinks that when International Monetary  Fund (IMF) proposed economic reforms in India, they did not deliberate much on the system of formal property titles because intellectuals in the West assume that property titles were clearly defined throughout the world. Even though there are no clear estimates, de Soto thinks that nearly 5 billion people on earth are outside the formal economy, and in countries like India, this might even be more than 80 per cent.

The process of clearly defining property rights will inevitably be complex but certain fears are misguided. Many, for instance, believe that slum dwellers will be conned by real estate developers who may buy plots of land for a pittance, depriving them of affordable housing and source of livelihood. This is highly improbable because developers and private corporations generally require large parcels of land with clear property titles. When property titles are granted to slum dwellers, they have clear property titles, but these are still small parcels of land. To claim ownership over such large parcels of land, they need the cooperation of a large number of people who live in informal settlements. It is difficult to defraud so many people. This does not mean that the process of handing out property titles would be easy. But, this certainly implies that these fears are not rooted in sound reasoning.

Why is this so important?

The Rs 20,000-crore worth real estate assets, if liquidated, can meet infrastructural needs of the district to a large degree, or perhaps more. In the US, for instance, many entrepreneurs find funds for starting a business by mortgaging their house. Small Indian entrepreneurs are deprived of such resources. It is important to note that Harvard economist Edward Glaeser called Dharavi the most entrepreneurial place he had ever been to. But, many of those entrepreneurs would not be able to find funds by mortgaging their house. They would not even be able to renovate their property or increase the height of their buildings without subjecting themselves to great risk. Well-maintained land records are also important to build city-wide public utilities. At present, they can use their house only as shelter. There is no good reason why this should be so.