In your interest.
Online Personal Finance Magazine
No beating about the bush.
Would you believe that Maharashtra loses over Rs25,000 crore annually because of carelessness or corruption, and this has not been exposed so far?
Are we really poor or are we thrust into poverty? The recent scams, which have been unearthed, give me a feeling that we may actually be quite well off with enough resources. If the lakhs of crores of public resources being given away and snatched away by the few were to come to the public exchequer, we could be quite comfortable as a nation. I have been pursuing one such scam in Maharashtra in which I believe a few thousand crores of public money is being lost to benefit a few.
Maharashtra’ debt is about Rs2.7 lakh crore, and we pay the interest for this. A state owns many resources on behalf of its citizens. One of these is land. Governments sell some of the lands and give some on lease. The idea behind giving certain lands on lease is to basically have an inflation-proof investment and sometimes, to encourage certain activities. Hence it offers lands on lease. It wishes to retain the land so that it may basically ensure that its revenue matches with the growth in inflation.
A lease is legal transaction, which primarily lays down the area that is leased, purpose for which the land is to be used, period of lease, lease rent and certain other conditions. When the lease expires, it may be renewed with the lessor increasing the lease rent as per the market price, which reflect the inflation in the intervening period.
When any individual or institution gives land or a property on lease and the lease expires, a fresh lease is drawn up at the prevailing market rates if the lessee wants to continue. This simple principle has not been followed in Mumbai and possibly in the state of Maharashtra. I have been told that this is true all over the country. Some leases are renewed while some are allowed to continue occupying the land at the old rates. What are the reasons for such irrational actions?
This may be due to carelessness or corruption.
I had discovered this in 2005 and drawn the attention of the chief secretary to this in a letter titled “Arbitrariness and huge loss of public money in public lands given on lease”. I have now got the scanned copy of the file relating to this which has over 600 pages over the years and has ended on a bizarre note.
The Supreme Court is the 2G case has said, “In conclusion, we hold that the state is the legal owner of the natural resources as a trustee of the people and although it is empowered to distribute the same, the process of distribution must be guided by the constitutional principles including the doctrine of equality and larger public good.” The poorest man who may be starving is an equal and rightful owner of this land, and it is necessary that the appropriate revenue is obtained for him. I looked at the list of leases of lands given by the two collectors of Mumbai (obtained in RTI) and decided to calculate the worth of the lands where lease deeds have expired and unauthorized occupiers are allowed to continue.
Let me first share the route the Maharashtra Government has decided to adopt after eight years of confabulations: The government has decided to offer the lands to the lessees at about 20 to 30% of the value! I am shocked at this irrational action of the government and think it is about time, citizens defend their revenue by telling the government they will not accept this approach. Below are the detailed calculations...
Note on some assumptions in calculations:
I used the Ready Reckoner rates, which are for FSI of 1 (one). I checked with some renowned architects and builders and was told that the land value for the island city is reckoned at a FSI of 3 to 5 and for the suburbs at a FSI of 2 to 4, I therefore assumed land value at FSI 3 for the city and 2 for the suburbs. In the case of the suburban collector, when I could not get the value of the land from the Reckoner I took two leases which had been given. In 2007, for an access road Rs1,062 per sq mtr had been charged; I therefore assumed a rate of Rs1,200 per sq mtr in 2013 for access roads, playgrounds, etc.
For other uses, I assumed a rate of Rs5,200 per sq mtr since a lease had been given in Malad for a CNG outlet in 2009 at Rs5,348 per sq mtr. In the case of Mumbai collector, since usage has not been provided, I have assumed that the total rent would be less by 15% to take into account the open grounds/ playgrounds, etc.
My feeling is that the total figure, which I have arrived at is most probably an underestimate. I have assumed that the market would be willing to bid at least 7% of the market value of the lands. In this case the fixed lease rent would be payable for a period of about 30 years. Future escalations would be to the lessee’s advantage.
On this issue I quote from the Supreme Court judgement in Matter No.C.A.No.5559/2001 JH Wadia v/s. Board of Trustees, Port of Mumbai, where it said, “The period between 1.4.1994 and 31.3.2000 is the bone of contention. The compromise proposals proposed 15% return for non-residential use and 12% return for residential use as the fair market rent on the estate value. The division bench of the High Court has directed these rates to be reduced to 6% and 4% respectively. Instead of our undertaking an exercise afresh as to what would be a fair and reasonable return to the Bombay Port Trust, it is sufficient to record that all the learned counsel for the parties excepting the Bombay Port Trust, have agreed that the lessees are prepared to accept the rates revised as 10% and 8% respectively.”
Based on this I feel a rate of 7% today is very conservative.
In the case of the information about leases provided by the Mumbai collector, in 103 cases there is no mention of the lease date and period of lease. Despite a specific query by me using RTI, the PIO has said they will need two to three months to provide this information!
There are also other government agencies like BrihanMumbai Municipal Corporation (BMC), which have similar lands in Mumbai. My calculation (see box above) estimates that there is an annual loss of about Rs1,550 crore by Mumbai Collector and about Rs1,200 crore due to the suburban collector (see below), i.e. a total revenue loss of Rs2,750 crore every year.
The government now proposes to give away ownership rights to the lessees for Rs2,248 crore plus Rs1,841 crore onetime! Citizens must protest before the government dispossess us of our land and legitimate revenue.
If we can get the government to auction the leases in Mumbai and all over Maharashtra we could have a revenue stream of over Rs25,000 crore each year. Citizens and media need to make the government get the appropriate revenue by fixing lease amounts at current rates. Also this is a revenue stream which is partial hedge against inflation, saving future generations from having to pay ever higher taxes.
(Shailesh Gandhi served as Central Information Commissioner under the RTI Act, 2005, during 18 September 2008 to 6 July 2012. He is a graduate in Civil Engineering from IIT-Bombay. Before becoming a full time RTI activist in 2003, he sold his packaging business, Clear Plastics. In 2008, he was conferred the Nani Palkhivala Memorial Award for civil liberties.)