India Chooses Poverty

Derek Scissors / June 27, 2012

When Indian officials are pressed about their failed policies, they typically talk about their nation’s fundamentals still being sound. Most observers (even most critics) accept this, but what if India’s fundamentals were, in fact, deteriorating?

Recent policy failures have expanded to include a long delay in the Land Titling Bill. Land rights lie at the heart of India’s economic development, and the implications of this delay are profound and disturbing.

Last week, Minister for Rural Development Jairam Ramesh acknowledged that the federal government would, again, decline to put forward a piece of legislation. According to Ramesh, the Land Titling Bill is 25 years in the making but will still require 10 more. (And Ramesh is an advocate of the bill.)

Most foreigners—and many Indians—do not fully understand how weak India’s land rights are. Ownership of huge portions of the country have been contested since independence, and they will now apparently remain so for at least another decade.

Even when land is properly titled, ownership is limited to what the state doesn’t grab—water, timber, coal, and so on. Land transactions are therefore political in nature rather than commercial. When disputes occur, either the state is immediately involved or it must try, and often fail, to resolve them.

Indians largely take this as the normal state of affairs. But it is normal only in poor countries—both now and historically.

The initial economic development of any area is due almost entirely to agricultural productivity. More efficiency on the farm raises income and enables extra workers to join manufacturing and services. The key to productivity, in turn, is ownership.

Ownership induces farmers to work harder and smarter and draws the most capable people to the land. It is no coincidence that countries developed first where ownership rights are best protected. China grudgingly and partially accepted this in the late 1970s and took off thereafter.

India has been unable to follow. It is almost incomprehensible, but Indian agricultural productivity may actually be dropping. This is why it has been so difficult to make a dent in poverty, even with fast growth.

And it all comes back to decades of refusing to take on the political challenge of establishing clear rights to land. The latest refusal ensures more years of development failure.