Not all great-sounding ideas can be materialised as outcomes. Nowhere is this more common than in development and public policy.
There are several reasons for this dissonance between ideas and their adoption at scale. For a start, implementation of the concept runs into practical challenges, including weak execution capabilities, that compromise the fidelity of execution, thereby resulting in poor implementation and failure to realise the expected outcomes. This is arguably the most commonly observed reason for the dissonance in development.
Then there are those problems, the so-called wicked problems, that are not amenable to a reductionist approach involving elegant, logically correct, and technically appealing ideas. Further, these problems generally generally require persistent and painstaking long-drawn engagement to start to show outcomes.
There are those ideas that sound great but generally struggle to scale because there are inherent constraints and limitations to their scaling. For example, behavioural change interventions like a financial incentive or a framing nudge, when scaled (and over time), tend to lose their effectiveness.
Finally, there are those great-sounding ideas that are over-hyped and over-sold, whose actual benefits fall far short of the projections of experts and commentators.
Consider two such oft-repeated ideas for windfall revenue realisations - governments must monetise vacant land holdings, and increase revenues by expanding the tax base (by collecting long-pending revenue arrears or detecting large leakages or identifying new revenue streams).
Now, both ideas have some merit, but the expectations are grossly overestimated. They are based more on misplaced hope and not on a practical understanding of the contexts and underlying problems. Reinforcing this, apart from rare one-off examples, I don’t think there are any instances (across geographies and sectors, and over time) in India where windfall revenues have been realised from an institutionalised process.
Take the example of the monetisation of vacant lands. For sure, there are a tiny handful of one-off instances where a few state governments, after immense efforts, have managed to auction a few parcels and realise significant amounts. But they must be seen against the numerous failed attempts made across almost all states, often repeatedly, to auction lands.
Institutionalised and focused efforts in selling government lands have generally been a failure. Some states have established dedicated entities to raise revenues by selling government lands. The Government of India established the Land Monetisation Corporation (NLMC) with the exclusive mandate to raise revenues by monetising lands. None of these efforts have anything significant to show. In fact, I don’t think there is even one instance of a state or local government having institutionalised a process whereby they have been able to continuously raise significant revenues by selling government lands in a phased manner.
An exception is that of urban development authorities and industrial development corporations in some states and that too on the suburbs of large, perhaps metropolitan, urban agglomerations. And these sales too have happened during the early phases of those cities’ emergence (think Gurgaon, Noida, Hyderabad etc.).
Globally too, I’m not aware of instances of successes with land monetisation. The Canada Lands Company is often touted as a global best practice in land monetisation. But, for an entity in existence since 1951, its nationwide cumulative sales realisation and land holdings are too small to be considered anything but a pilot.
Governments, and especially certain departments and entities, undoubtedly hold vast extents of vacant land. But their auction sales run into several daunting problems. For one, land prices in urban India are already too high that markets cannot absorb sales in significant volumes. Two, perhaps the biggest challenge to land auctions in India is the near inevitability of litigation. Every state and central agency has its share of large volumes of land locked up in litigation arising from land disputes (private counterclaims) or initiated by disgruntled or mischievous auction bidders. The value of lands auctioned without amounts being realised due to litigation will itself be a large amount.
Three, government land auctions have deep political economy impacts. There will be local vested interests who lose out from the sales and the consequent redevelopment and local politicians who have an interest in maintaining the status quo. Finally, public land auctions present enormous direct and indirect rent-seeking opportunities that invariably engender scandals and controversies. Influential people with insider information indulge in speculative land transactions before such auctions, arm-twists the buyers to share rents, or manipulate markets to depress prices and knock off the auctioned land at lower prices.
Instead of outright sales through auctions, more practical approaches to unlocking value from land would be sales to other government agencies for offices and other requirements (easiest), value capture concessions on Public Private Partnerships (involve significant transaction efforts), and allotment for affordable housing projects (this too requires structuring and transaction efforts). The only realistic land sales strategy would be to undertake phased and gradual sales of small land parcels in an institutionalised and transparent manner.
The other example is that of increasing tax revenues. Again, I cannot think of any instance in the last two decades from India of a state or central government that has actually realised (as against merely raised demand and created a receivable) a sudden and significant increment (a windfall) in cash revenues from a new revenue source, or the detection of revenue leakages, or the collection of long pending arrears. For sure, there will be claims and even awards given to such claims, but if you dig deep the actual realisations in terms of significant amounts having been collected will be far lower.
All actual revenue increases come from long-drawn efforts, and not from free lunches or dollars on the sidewalk. In fact, there are no such free lunches.
Any incremental revenue realisation has counterparties who lose equivalent incomes. If the government’s revenue realisation is significant, so is the private individual’s (or entity’s) income loss. Such losses cannot not trigger immediate economic and political repercussions. The potential losers will therefore fight with all their might to avoid giving up their incomes. They will deny, delay, litigate, politicise, and corrupt the system to retain their incomes. It’s therefore no surprise that all revenue departments across governments have large amounts locked up in litigation, as arrears, and in procedural delays (which in turn end up in litigation and/or arrears).
It’s for this reason that, as I blogged here, state and central tax and other revenue mobilisation agencies have a uniformly poor track record of actual realisations from the large amounts of demands raised by them. None of the direct and indirect taxation agencies of state and central governments can claim to have actually realised large amounts through investigations and enforcement actions even when they have raised large amounts of tax demands. Similarly, there are no instances of a new revenue stream emerging with windfall revenues realised. Nor are there instances of large realisations from long-pending arrears.
Instead of expecting windfall realisations, government agencies should be encouraged to systematically identify revenue leakages and new revenue sources, and initiate efforts to prospectively assess, raise demand, and collect them. Broadening the tax and revenue base is the only realistic means to increase revenues. There are hardly any quick windfall revenue mobilisation opportunities in government.
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