Part 5 of What needs to be done to get INDIA back into 8% growth …. land reforms needed to unleash India

China is on track to become the largest economy in the world on the back of massive industrialisation and movement of agricultural labour to factory workers to become the factory for the world. While India remains stubbornly rural with close to 50% of the population still dependent of agriculture. 

The zamindari abolition (redistribution of land to the tillers from absentee landlords) remains an unfinished agenda. The unfinished agenda report has been gathering dust for a decade being “studied” by the Indian bureaucracy. More than 10 million people remain landless labourers and sharecroppers. However, even if the redistribution (which is a state subject) were to be expedited, it is not going to be transformative. The increase in population and therefore fragmentation of holdings has led to a situation where an average farmer has less than 2 acres of land. This is a fraction of the minimum viable size to invest in mechanisation and has ensured that Indian agricultural remains one of the poorest in terms of yields (a third lower than the global average and just a quarter of the best of breed German farms for wheat for instance) and remains subsistence level. 

Because titles are not proper, possession remain 9/10th of the law and that hinders the movement of labour to cities and industries. Restriction of who can own agricultural land (in most states, its a hereditary right and non agriculturists and corporates can’t own agricultural land) has ensured that modern methods can’t be applied and yields and therefore surplus remains low. 

What is really required is easy availability of land to set up industries. Given fragmented holdings, it is very difficult for land to be aggregated by the private sector. I had visited a industrial cluster in China along with one of the companies on whose board I was. The local government official offered us ready build factory shed and a hostel for workers and said that if we wanted , we could start the NEXT day. This is the competition! 

However, the China , US rivalry is now structural and long term and global supply chains are looking for a new home as an alternative to China. But the beneficiaries so far have been the south East Asian countries. We need a massive push into creating land banks and single window clearance and not the typical Indian bureaucratic red tape. Otherwise, we are soon going to be hit with a demographic discount with armies of unemployed young people and the accompanying social strife (a part of which we are seeing on the streets already!). 

To be continued….Next article: criticality of labour reforms link to next article

Published by Deep Mishra

Deep Mishra is an IIT Kanpur , IIM Kolkata alumni. He has about 25 years of experience. He spend 10 years investing in consumer and pharma companies as a Managing Director at Everstone Capital, 3 years in a global hedge fund Och Ziff and 3 years as an I-Banker with EY and has been a tech entrepreneur. Views expressed here are purely personal.

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