A New Price Regime Land Markets in Urban and Rural India

Sanjoy Chakravorty ([email protected]) is at Temple University. Land prices in urban and rural India have increased rapidly in the last decade – fivefold in urban areas and possibly more in some rural settings. Using comparable international data, this paper shows that urban prices are significantly higher than is commensurate with income and that the peaks of these prices are extraordinarily high. Similarly, rural prices in several regions are very high by international standards. It argues that the present conditions can be explained by a combination of increasing land scarcity with increasing money supply – from expanded housing credit, and rising incomes from white, black, and foreign sources – and increasing income and wealth inequality. All of which means this is no mere bubble. The price of land has increased fi vefold or higher in many regions of India in the last decade. I argue that this is a transition, not a bubble, caused by rising credit, income, and inequality in conditions of increasing land scarcity. That land prices have increased in recent years is common knowledge in urban India, but is less commonly known in and about rural India where the price rise has varied by region. This paper is an attempt to (a) quantify the dynamics of land prices; and (b) explore explanations for the rapidity of the rise after decades of stasis, and for the extraordinary and globally unprecedented peaks of these prices. The body of the paper has separate examinations of India’s urban and rural land markets. There are three reasons for this separate treatment. First, we know more about Indian urban land prices than rural land prices. Part of this examination involves an understanding of this phenomenon itself. Why, with almost 130 million discrete pieces of privately-owned agri cultural land in the country, should there be limited information on prices? Second, because we know more about urban land prices, it is possible to provide more robust explanations for prices in urban settings. Third, the policy implications (not discussed here) are fundamentally different in urban and rural settings.