Procedimiento judicial

Goldman Sachs’s prescriptions for reform were not new. In the early 1990s, encouraged by the International Monetary Fund and the World Bank, the Indian

government began enacting a program of structural adjustments to open Indian markets to foreign investment, encourage exports, and reduce state involvement in industry. By the late 1990s, the government had moved decisively in favor of market based provision of real

estate (housing, offices, and retail property) and infrastructure projects (ports, airports, bridges, water, sanitation, etc.). As it opened both fields to the private sector and to foreign investors, it enabled the emergence of an international market in Indian real estate. The government and its consultants used stories about growth to propel these regulatory changes.

In 1994, an Expert Group established by the Department of Economic Affairs used projections of growth to legitimize the shift in government policy towards the

commercialization and privatization of infrastructure provision, arguing that “the kind of economic growth projected will not be possible without a substantial improvement in all areas of infrastructure” (Department of Economic Affairs 1996, 3). Meanwhile other consultants and real estate industry members argued that the real estate industry itself could contribute to economic growth. The 2001 report, India: The Growth Imperative, for example, contends that “land market distortions” – unclear land titles, land ceiling laws, stamp duties, and rent controls – stymie growth in property construction, amounting to “close to 1.3 per cent of lost [GDP] growth a year” (McKinsey Global Institute 2001, 4).23

Conversely, “growth” was also needed to boost the infrastructure and real estate sectors: the Expert Group maintained that “it will also not be possible to find the necessary resources [for infrastructure provision] . . . unless the country’s economic growth

accelerates” (Department of Economic Affairs 1996, 3). Believing economic growth would

23 _{Real estate industry members have consistently argued for the same set of legal changes (see Jha 2005). For} example, a 2006 paper by the chief economist at Gujarat Cements quotes figures from this McKinsey report. He combines the argument that real estate is good for overall economic growth with a humanitarian appeal to enable the industry to “satisfy the basic need of quality housing of every Indian citizen” in justifying his calls for regulatory and financial reforms that would benefit the real estate industry by making more land available, reducing taxes, and removing rent controls (Nanda 2006).

only be possible with increased foreign investment,24 _{the Expert Group recommended the} continued liberalization of the financial sector and the maintenance of “an open foreign investment regime” (Department of Economic Affairs 1996, 4). According to this circular logic, growth requires infrastructure, infrastructure requires growth, and both require foreign and private sector funding.

The 1998 Housing and Habitat Policy transformed these logics into official government policy.25 _{Asserting that “the Government has to create a facilitating}

environment for growth of housing activity rather than itself taking on the task of building,” it signaled a shift away from years of prioritizing the role of various state run development authorities and housing boards (Ministry of Urban Affairs and Employment 1998).26 _Many

states followed the national lead. In Delhi, for example, the 2021 Master Plan opened up more than 20,000 hectares for private development, breaking the Delhi Development Authority’s near monopoly on large scale development projects (MPD-2021 2007; N. Rai 2007). The Wall Street Journal called the new Master Plan a “jackpot for developers and builders” (Sabharwal 2007).

24 _{This is exactly the logic propounded (and the language used) in the World Bank World Development Report1994} on infrastructure provision in the developing world. The Expert Committee cites examples from this World Bank report of “successful public provision of infrastructure services” (Department of Economic Affairs 1996, 218; Ghosh, Sen, and Chandrasekhar 1997; World Bank 1994).

25 _{The 1998 Budget also introduced a tax incentive for housing developers and an increase in the mortgage} deductions for home buyers to jumpstart private sector housing provision (Ministry of Finance 1998). 26 _{The policy also suggested the repeal of the Urban Land (Ceiling and Regulation) Act (ULCRA) in order to} make more land available for development. This had long been a demand of the real estate industry. The act was repealed by the Central Government in 1999 and many – though not all – states followed suit. As of 2005, Andhra Pradesh, Assam, Bihar, Kerala, Maharashtra, and West Bengal had not repealed the act (CREDAI 2005). Maharashtra repealed the ULCA in November 2007, amid much fanfare. Stocks for Mumbai-based realty companies rose between two and 10 per cent upon the announcement of the repeal, despite the fact that the estimated 15,000 acres land likely to open up in Mumbai as a result would probably not become available for development for two or more years (Bavdam 2008; Economic Times 2007i; Ramanathan 2007f).

In the most comprehensive attempt to set “in motion a completely market driven urban development process,” the Ministry of Urban Development established the Jawahalal Nehru National Urban Reform Mission (JNNURM) in 2005 (Batra 2007).27 _{This initiative} links Central Government funding for projects in sixty-three cities to a set of mandatory reforms which reduce developers’ transaction costs, minimize uncertainties in the development process, and make more land available for development.28 _{In short, the program seeks to} develop “an efficient real estate market with minimum barriers on transfer of property” (JNNURM 2007, 74) and thus “catalyze investment flows in the urban infrastructure sector” so that cities will live up to their projected contribution to national economic growth (Ministry of Urban Development 2006).

The Government of India has taken addition steps to make real estate development accessible both to the Indian private sector and to foreign investors. First, the Government of India legalized foreign direct investment in township construction in 2002. It further liberalized the policy in 2005, reducing the minimum size requirements for townships and enabling foreign investment in other types of construction-development projects (Table 2.1). Now foreign direct investment in real estate can proceed through the automatic route, i.e.

27 _{As Lalit Batra writes,}

the JNNURM is the culmination of a process of neoliberal urban reforms that has been going on since the late ‘90s. Its predecessors include the Urban Reforms Incentive Fund (URIF) and Model Municipal Law (MML), both of which were formulated on the basis of a set of policy postulates developed by the World Bank (WB), the Asian Development Bank (ADB), the USAID and the UNDP (Batra 2007).

The Urban Reforms Incentive Fund, begun in 2003, linked urban reforms to an annual allotment of Rs500 crore in central government funding; it was subsumed under the JNURRM in 2005 (Ministry of Housing and Urban Poverty Alleviation). Similarly, through the Model Municipal Law, the USAID Financial Institutions Reform and Expansion (FIRE-D) project and the Government of India provided a model of accounting norms, financial management, and reforms for urban bodies to emulate (Model Municipal Law).

28 _{The reforms include: lowering stamp duty; computerizing land registration records; introducing property title} certification; streamlining the approval process for building construction; repealing the Urban Land (Ceiling Regulation) Act; and simplifying the procedures for converting agricultural land to non-agricultural uses.

without prior approval from the government or the Reserve Bank of India. These regulations enable investment in construction projects rather than finished buildings; regulations about the conversion of agricultural land to other uses continue to prevent foreign investors from buying land directly.

Table 2.1

Regulations for foreign direct investment in Indian construction-development projects

Minimum area developed Serviced housing plots: 10 hectares

Other projects: min. built-up area of 50,000 sq. meters Minimum project capitalization Wholly owned subsidiaries: US$10 million

Joint ventures: US$5 million

Repatriation period 3 years from completion of minimum capitalization29 Timeline Completion within 5 years of obtaining permits

Compliance Project must comply with all local planning/zoning rules and obtain all necessary building approvals

Source: adapted from Press Note 2 (2005), Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion, SIA (FC Division),

http://www.urbanindia.nic.in/moud/programme/ud/main.htm (accessed November 2006).

Second, the Securities and Exchange Board of India began allowing venture capital funds to invest in real estate in 2004, a move which spurred the development of domestic real estate investment funds (TrammellCrowMeghraj 2007). Third, the 2005 Special Economic Zone (SEZ) policyhashelped to make large tracts of land available for real estate projects by providing considerable incentives to both developers and industry. The policy waives import duties, service tax, and central sales taxes for Special Economic Zone developers and gives them free reign to construct infrastructure and townships. Individual states have added their own incentives in terms of rebates on land, decreased stamp duty, and various incentives for

29 _{The Government of India has gone back and forth on the question of whether foreign institutional investors} buying shares in an Indian real estate company in advance of a public offer should be exempt from this three- year lock-in period. The Department of Industrial Policy and Promotion and the Securities and Exchange Board of India has been in favor of the exemption, and the Reserve Bank of India, anxious about foreign investment fueling a real estate bubble, has opposed it (see Business Standard 2007a; Sikarwar 2007; Subramaniam 2007).

investors. With these regulatory changes in place, foreign investors were no longer “left with their noses pressed against the window” of Indian real estate development (Smith 2004); the government welcomed investors with open arms.