The Broker Online

Public-private developments in India

Sai Balakrishnan is a postdoctoral research scholar at the Center on Global Legal Transformation at the Columbia Law School.

In India, some of the most contentious land conflicts over the past decade have involved public-private partnerships.

Public-private partnerships have become sine qua non in large-scale urban and infrastructure developments in newly liberalizing economies. Though countries like the US and those in Europe have longer histories of active private sector involvement in land development, it is only in the past two decades that market actors have become central players in the hitherto state-led post-colonial and post-communist economies. In India, some of the most contentious land conflicts over the past decade – Singur, Yamuna Expressway, the POSCO mining conflict – have involved public-private partnerships, and the flashpoint has been the role of the government in acquiring land for the private sector for industrial and infrastructural development.

The debate on public-private partnerships is largely polarized. The proponents argue that fiscally-constrained public agencies can effectively direct private capital towards urban and infrastructural development through public-private partnerships. The critics argue that public-private partnerships are motivated by property development interests and disproportionately benefit large developers and businesses, as well as curtail, and even corrupt, the scope of public agencies to act in the public interest.

These extreme positions, though warranted in certain cases, dichotomize and simplify a complex trend. Public-private partnership is a vague concept that covers a range of institutional arrangements that vary in their degree of ‘publicness’ along the public-private spectrum. The choice of term – the public-private partnership – is deceivingly neutral and masks the differential power equations within these public-private developments. Also, the term ‘partnership’ amplifies one reason for the coming together of public and private agencies – to maximize their comparative advantages – to the neglect of other challenges that arise in the intermixing of the public and the private, not least of which is the conflicting organizational values of public agencies vis-à-vis private companies. (I therefore use the term public-private development, and not partnership, in the rest of the piece).

Based on fieldwork conducted on land development along highways in India, I use the case of a large-scale public-private development along the Pune-Nashik highway, the Khed City development, to highlight three variables that give more clarity to the public-private phenomenon: private values in public agencies, counterpublics and the public interest, and public-private allocation of land value increments.

Khed City: an example of public-private development

In 2006, the private sector firm, Bharat Forge, identified 941 acres of land in four villages along the Pune-Nashik highway for the setting up of the first phase of a Special Economic Zone (SEZ), called Khed City. The western Indian city of Pune is rapidly urbanizing and benefits from its proximity to India’s commercial capital, Mumbai. For various reasons, including cheaper land cost, industries are moving out of cities into the peripheries of large cities and into well-connected villages located along highways. Bharat Forge approached the industrial parastatal, the Maharashtra Industrial Development Corporation (MIDC), to acquire land on its behalf through eminent domain. Bharat Forge, like other private sector firms in India, was loath to purchase land directly from agrarian landowners because of the endemic problem of unclear land titles. Most agricultural lands have encumbrances, including mortgage claims and restrictions on the alienability of agricultural lands (instituted soon after independence to protect agrarian landowners from speculative transactions on their land). When parastatals acquire land through eminent domain, the land is declared free of encumbrances. The risks for the private sector, then, are considerably reduced with parastatal mediation in land acquisition. However, compulsory acquisition of agricultural land in the Khed villages was met with stiff opposition: agrarian landowners staged protests outside the Khed government offices and media coverage amplified the visibility of these protests. In the face of vociferous opposition, local Khed bureaucrats negotiated with the protesting landowners and reached a mutually agreeable solution: instead of compensating landowners monetarily, MIDC would pay the landowners in-kind in the form of 15% shares in the Khed City company.

The joint venture company that was finally formed, called the Khed Economic Infrastructure Private Limited (KEIPL), is a complex assemblage of a private sector firm Bharat Forge, the industrial parastatal MIDC and an agrarian landowners’ cooperative. Bharat Forge and MIDC own 85% of the KEIPL shares in a 60:40 ratio and the land cooperative owns the remaining 15%. The public-private development for Khed City capitalizes on the comparative advantages of these three different organizational forms: the private sector firm provides technical and financial expertise, the parastatal is crucial in delivering unencumbered land to the private sector for development, and the landowners’ cooperative is necessary to appease protesting landowners and secure their buy-in.

How ‘public’ are public-private developments?

With its complex cast of institutional actors, the KEIPL is a harbinger of the types of hybrid organizations we can expect to see in large-scale land development in rapidly urbanizing contexts like India. Using the concrete example of KEIPL, I outline three variables that can serve as barometers of the ‘publicness’ of these public-private developments.

1. Private values in public agencies

Local governments are conspicuously absent in many of India’s large land developments. The public agency involved in these public-private developments is the parastatals. Parastatals, also called authorities or special purpose governments, because they are often focused on a specific function like water provision or land development, are public agencies that have incorporated private values in their functioning (Burns 1994, Foster 1997). When an elected government wants to revise its taxes or raise debt, it has to seek public approval either directly through referenda or through the representative institutions of democracy – the state legislatures or parliament. Parastatals do not have to go through these democratic processes. This is one of the reasons that a large number of parastatals were set up in India in the 1960s and 70s, primarily to sidestep politics, which was considered messy and even corrupt. Parastatals, then, have more of a market orientation in their functioning and are clearly less ‘public’ than local governments, which results in considerable variation amongst public-private developments that involve elected governments vis-à-vis quasi-public agencies like parastatals.

2. Counterpublics and the public interest

The role of the public agency in the public-private development is to uphold the public interest. There are multiple publics in land development, thus giving rise to a contested terrain of plural public interests. Agrarian landowners in the Khed case are only one segment of the public; others are landless labourers who depend on these lands for their lives and livelihoods, the public-at-large within the region whose land values are impacted by the new development, and even the unorganized public like future generations which will inherit the consequences of current land use. And yet, the raison d’être for parastatal involvement in the public-private development is their eminent domain power through which they can provide unencumbered land for the private sector. Where is the public interest in this role of the parastatals? The public interest variable – what is the public interest being served through the involvement of the public agency in the public-private development, and which of the public’s interests is being served – alerts us to the multiple public interests at stake in these developments and how these interests are prioritized.

3. Public-private allocation of land value increments

The private sector firm, the parastatal and the agrarian landowners’ cooperative own 51%, 34% and 15% of the shares respectively in the KEIPL company. The equity contribution of agrarian landowners, in the form of land, is priced at 15%. And yet, in the seven years since the start of the project, land values in the Khed region have appreciated by almost ten times. If the project cost is revised to reflect the current market value of land, the land cooperative will be entitled to a much larger equity stake in the development. Also, the presumed risk for the project promoters/lenders is practically absent when the collateral asset, land, is rapidly appreciating. A key determinant in evaluating these developments is how both risks and land value increments are priced and allocated amongst the different public and private sector actors.

I use these variables as illustrations of the types of metrics that are needed for a more fine-grained and inductive analysis of these complex public-private developments. Variables like the ones suggested supra offer insights into the precise organizational structure of public-private project companies and enable us to go beyond the abstractions into sharper evaluations of them.

References

  1. Burns, N. 1994, The Formation of American Local Governments: Private Values in Public Institutions,
  2. Oxford University Press, New York.
  3. Foster, K. 1997, The Political Economy of Special Purpose Government, Georgetown University Press, Washington D.C.

 

 
Author: Sai Balakrishnan

About the author

Sai Balakrishnan is a postdoctoral research scholar at the Center on Global Legal Transformation at the Columbia Law School.

Want to know more?
Get in touch with us
Contact