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Will India Lead the Way in Urban Land Tax Reform? A Mission Director from the Ministry of Housing provides some Answers

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I first met Dr. Mohanty through a personal friend.   As we talked it became clear he was well versed in Georgist economics, and even better, was in a great position to do something about it.   Dr. Mohanty graciously agreed to a written interview, and then a follow-up during late May-early June 2011.   Here is the result. I plan to follow-up this intriguing opportunity in the future.   It is the author's belief that Georgism will come soonest to those communities and countries who perceive themselves as most in need of fundamental reform, like India, and not, unfortunately for most Americans, the United States.   Dr. Mohanty reminds us that his views are personal and not official.

SB: Dr. Mohanty, could you please describe your current position in the Indian Ministry, how long you have held this position and what your duties are?

PKM:   I belong to India's apex civil service, called the Indian Administrative Service. Currently I am working as the Mission Director, Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Additional Secretary in the Ministry of Housing & Urban Poverty Alleviation in the Government of India, New Delhi. JNNURM is the national urban mission of India launched in 2005. It involves a Government of India grant support of about $17 billion to aid infrastructure development in cities along with provision of housing and basic amenities to the urban poor in partnership with States and cities. It contemplates wide-ranging reforms for sustainable urban development and financing. I deal with the implementation of the Mission throughout the country, including scrutiny of project proposals from cities/states regarding housing, slum development and provision of basic amenities to the urban poor such as water supply, sewerage, drainage, roads, education, health, social security, etc.,   release of Government of India grants, review of physical and financial progress of projects and guidance to cities in the execution of urban sector reforms, including reforms for better municipal management and finance. Currently, the Mission is supporting about 900 cities with about 1500 projects relating to housing and basic services to the poor alone. In addition, there are many city-wide infrastructure projects being financed. I have been holding the position since August 2006

SB: I understand you studied in America prior to starting your position.   Could you briefly describe that training?

PKM: I did my Masters in Political Economy from Boston University, Doctorate in Urban Economics from Boston University (with one of the advisors from MIT) and Post-doctorate in Economics from Harvard University. I came on sabbatical and returned back to my job in the civil service after completing studies between 1987 and 1993. Since then I have held jobs like chief executive of the metropolitan city of Hyderabad, Director of Urban development in Government of India, Director General, Centre for Good Governance and Mission Director (JNNURM), etc. My research has helped me in applying theory to practice.

SB: And when did you first study Henry George?   What was your impression of his Single Tax solution?

PKM: I read about Henry George in connection with my PhD which touched upon issues of migration and local public finance. There is a famous paper by Richard Arnott and Joseph Stiglitz which mathematically derives the Henry George Theorem stating that under certain conditions, aggregate rent based on land value (land rent) would suffice aggregate spending by government. George made a lot of sense to me given my knowledge of Indian cities. George was very modern for his time. The assumptions are important as they are the ones on which the Henry George results are based. We have to interpret George in the present day context. Taxation of urban land value makes a lot of sense for cities in developing countries like India where urban land values are soaring and public investment and spatial planning are key factors leading to such rise in land values. The collection of a rent/tax based on land values to help defray the public expenditures that lead to (the) creation (of higher) land values is very sensible and would generate a spiraling process of self-financed urban development. Taxation of land values can be an important way of financing city-wide and regional infrastructure and guiding city development, creating and tapping land value in developing countries like India. George's Single Tax solution needs to be interpreted not in letters but in its spirit. George has an important message for city development on self-financing basis in the case of growing cities of developing countries. First, good taxes like land value taxation need to be tapped first.   It is a pity that governments/local bodies in most developing countries are yet to exploit land as a resource.

SB: I understand you know the works of both Mason Gaffney and Fred Harrison, both prominent Georgist economists. Have you been able to incorporate their ideas in your own presentations?

PKM: I have not met them. But I have read about their seminal works. Again their works make a lot of sense for developing countries which are creating land values in cities through planned development including infrastructure. In India we have adopted the strategy of inclusive growth in our current Five Year Plan (11th Plan) realizing that growth would not automatically percolate to the poorest of the poor and the marginalized sections of society. Some deliberate design of inclusion in the growth strategy is important. In the urban context, the poor are increasingly being weeded out of the urban land market because of sky-rocketing land prices and enormous speculation in urban and peri-urban land transactions. As part of the inclusive growth strategy we have proposed the development of inclusive cities under the Jawaharlal Nehru National Urban Renewal Mission where the poor need to have a place to live and a place to work. To make cities inclusive, affordable housing, basic amenities to the urban poor, etc. need to be deliberate parts of city planning and development strategies. Development of regional and city-wide infrastructure, affordable housing and basic services to the poor would require huge investments. Taxation of unearned increments in land values created by growth and city development process would be an appropriate method of creating inclusive cities. India is only 30% urban. The journey from 30% urban to 70-80 % urban would see enormous increase in urban land values and the same could be a huge source to finance value-creating cities and developing them. I have tried to incorporate research findings into practice in some of the positions I held such as chief executive of Municipal Corporation of Hyderabad.     

SB: Now that you have this background in Georgism, how do you think it will help with India's budget and infrastructure issues?

PKM: George's theory is very relevant for countries like India. India has 5161 cities and towns. All the local bodies have access to taxation of property which includes land. However, urban local bodies are faced with difficulties in finding resources for the development of city infrastructure and services. They have not exploited land as a resource. Land value taxation (whether capital value based or rental value based) will be an important means to finance infrastructure in India's cities. I see the significance of Georgism in the context of financing of local public goods and services.

SB: I understand you and some other ministers have formed a working committee to try to implement the Land Value Tax in India.   Could you tell us a little more about that?   How does it work?   Are there regular meetings?   How do you rate the chances of being able to implement a Land Value Tax -- both locally and, ultimately, nationally?

PKM: There was a National Committee called High Power Expert Committee on Urban Infrastructure under the chairpersonship of eminent economist and public policy analyst, Isher Judge Ahluwalia for assessing city infrastructure needs and suggesting ways of financing city infrastructure development in India. This Committee has recommended the use of land as a resource as one of the key measures for the development of infrastructure in India's cities. To quote from the Committee's Report (2011):

"The Committee also reiterates its recommendation on vacant land tax which has great potential considering that cities are expanding boundaries, and land values of erstwhile rural lands are appreciating very fast.

While private developers should be encouraged, government should adequately tax the developers to ensure that the increased land values are used for development of infrastructure in and around the developed areas".

Many other studies have also suggested land monetization as a key method for financing city infrastructure needs. What shape exploitation of land as a resource will take is under debate.   Lessons from Georgism would be important. However, we need to have a lot of discussions with experts and policy makers as to the form of exploiting land as a resource. LVT has to be interpreted in a generic way as no one size will fit all. India is a huge country with different systems of city finances in different States. Political economy is important. Georgism has to be interpreted in the political contexts of these States. I think we need to apply land taxation in the context of the political economy of our country and history of our states and local bodies as political decision-makers have to buy in the land taxation argument. Economic reasoning will not be enough. Personally I am working on a paper on land value taxation.

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http://newthinking.blogspot.com/

Scott Baker is a Senior Editor/Economics Editor and Writer at Opednews, and a blogger for Huffington Post.
Scott Baker is President of Common Ground-NYC (http://commongroundnyc.org/), a Geoist/Georgist group. He has written dozens of (more...)
 

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Indeed, why not India?  Perhaps as an ideal m... by David Chester on Saturday, Jun 18, 2011 at 4:13:38 PM