Skimpy has a post up about how the shortage of airport infrastructure is a looming crisis for Indian aviation, and talks about how it might play out.
He suggests that the way out of the crisis is for the government to facilitate the construction of new airports- without necessarily building it themselves. According to him, private entrepreneuers can run the airport on a BOO (Build, Own, Operate) basis. The major role for the government would be to start a licensing or tendering process for new airports, and to facilitate the land acquisition.
He’s right. The less the government is involved with the actual development, the faster a new airport will actually come up. And I’ll have to reluctantly admit that the government will need to acquire the land and hand it over.
Why reluctantly? Because when the government acquires land and hands it over, it will be solving a problem of its own making. The reason the government would have to acquire land for the airport is that land laws in India are such a mess that airport operators can’t possibly do it on their own.
For example, in most states farmers can only sell their land to other farmers. This idiotic legislation means that any time any real estate developer wants to build anything- be it an airport, a highway, or an apartment block on agricultural land, he has to first get the government to buy it from farmers and then sell it to him.
This has two bad consequences. First, since the government is the dealmaker and has all the information about land value, it creates opportunities for corruption. Secondly, since neither the buyer nor the seller have information about how much value the other places on the land, it ensures that at least one of the buyer and seller will be unhappy with the price that is paid.
Suppose the government buys the land from the original owners at a price less than the value they associate with it. They’re going to be unhappy. This unhappiness will manifest itself as riots, protest movements, or litigation against the project. This will lead to delays in the project, driving up its costs.
Suppose the government decides to avoid all this hassle and pays a price which is definitely higher than what the owners value the land at. Now, the real estate developer ends up paying more than the market price. This could have two consequences- either it passes on the extra costs to the end consumers, or it decides that the project isn’t worth it at that price, and abandons it. This is a loss not only to the developer- it loses a money making opportunity- but also to the landowners- they lose the opportunity to sell.
These absurd land laws are a much bigger hassle than the shortage of airport infrastructure- in fact, they’re probably one of the root causes. And unless these laws are reformed, even private sector airport development is going to be plagued with litigation, delays and protests, just as other infrastructure projects like the Bangalore-Mysore Infrastructure Corridor have been.