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RTI Activist Krishnaraj Rao Explains How Builders Have Merged with Govt, Administration & Politics

25 March 2011 One Comment

RTI Activist Krishnaraj Rao has been always up to explanatory Revelations, below he explains how  the Builders in this Country have merged or have a alliance with Government, Administration & Politics.

In recent months, we have held discussions with many victims of the building development industry, and also activists. We have also been lately focused on corruption. Some collective insights are emerging, which I shall share here to enable further action. What I am saying here is probably known to many of you at a gut-level, but you may not have expressed it in words. And so I am putting it down, on behalf of all of us in civil society, the sum total of my observations:

Construction Industry is an Insider-trading cartel. Insider trading may be defined as the open market dealings of people who have privileged access to information. Worldwide and in India, insider-trading is considered as an evil, and regulators of stock markets and commodity markets try to curb it. Another globally recognized evil is trading cartels i.e. gangs of persons who act in concert to exert undue control on the markets. In India, the building construction and real-estate industry is, however, unregulated in these respects. It is in this sense a corrupt industry, with rampant insider-trading and uncontrolled cartel-formation.

The insiders of this industry have in fact cornered all access to timely and meaningful information; other market participants – such as flat purchasers and sellers — only see and hear what the insiders want them to. We, the common public, and the owners and buyers of land, flats, industrial and commercial premises etc. are all victims of the cartel’s monopolistic and restrictive trading practices. We are trading in a market that is thoroughly rigged, with prices that are fixed by the people on top.

The Building Industry Cartel is made up of many elements:

(a)    Politicians & senior bureaucrats who take key decisions (or influence decisions) such as where to build highways, airports, special economic zones (SEZs), power-plants etc., have the “first-mover advantage”. As they know exactly where the land prices are about to shoot up, thanks to such planned developments, they know exactly where to buy large amounts of land while it is still cheap. And that is how politicians as a class of people get rich. See this study by ADR, which shows how the average asset value of 304 MPs in Lok Sabha 2004, who sought re-election in 2009, grew from Rs 1.9 crore to Rs 4.8 crore: http://tinyurl.com/MPs-get-rich

(b)   Builders, developers, town-planners and architects, who are the henchmen of politicians and bureaucrats in such money-spinning ventures. It is a relationship of great trust and interdependence.

(c)   Money-lenders who have a large flow of “cash income” e.g. restaurant owners, doctors who own nursing homes etc. This class of people is the enabler – the people who make it possible for politicians and builders to have liquidity at short notice, whenever they need. If you are wondering why restaurant owners and private nursing homes never attract the attention of the Income Tax department, despite the massive amounts of cash that they handle every day, this is the reason.

(d)   Big investors who have holding power to stay invested in properties worth several crore rupees for many years. These are usually big operators in the stock markets and commodities markets, who are looking for massive asset growth over the long run.

(e)   Architects & civil engineers who act as fixers and touts, interacting with concerned government departments to procure permissions, licenses, certificates etc. Through long years of experience, they know at what points of the administration to distribute speed-money in a discreet way, without compromising anybody’s dignity and honour. They are the reason that builders’ paperwork moves through super efficiently through normally-tardy government offices, and with utmost secrecy.

(f)     Heads of concerned departments (e.g. MHADA, MMRDA and Building Proposal Department of Municipal Corporations) where these fixers and touts operate. Although these heads of departments act with poker-faced dignity, and occasionally act tough on builders, they ensure the continuation of an administrative environment that is ultimately pro-developer and anti-common-man. For details of how this is done, read this letter to Mumbai’s Municipal Commissioner by Utsal Karani & Indravadan Shukla: http://tinyurl.com/Concessions2Builders

(g)    Peons, clerks and minor officials of departments where physical records of land and building are preserved, and necessary permissions and certificates are issued, are key players. They get paid for giving the builders and architects unofficial access to documents.

(h)   Police officers and other law-enforcers, including municipal officials who have the power to issue demolition-notices and curb wrong-doings, and prosecute by applying various sections of IPC, Regional Town Planning Act etc. These people get paid to look the other way, or to act with clever passivity whenever a complaint is made against a builder. Arguably, the most rampant form of corruption in the country is error of omission i.e. ignoring the call of duty to take action. Inaction is easy to justify because almost every public authority has huge backlogs, and is understaffed; it appears that many organs of administration are deliberately designed to fail!

(i)      Administrative, quasi-judicial and judicial authorities such as MHADA officials who conduct hearings. It is the common man’s experience that hearings and orders are very often perverse and pointless. Even when forced to recognize in their orders that the laws have been deliberately broken, the authorities give further time for compliance, or order regularization of the irregularity.

(j)     Judges of sessions courts, cooperative courts etc. where cases involving builders are heard are notoriously lenient to builders. It is naïve to assume that they are acting without fear or favour.

(k)    Gang-lords, slumlords and land-grabbers do the dirty work. Enough said.

(l)      Small-time politicians such as local shakha members of  Local Political Parties, have enormous power to keep vocal citizens in check. Their power comes from their ability to incite local violence for flimsy reasons. At the ground level, they are the reason why people fear to speak out against politicians like the Thackeray family, Sharad Pawar, RR Patil, Narayan Rane etc. We know that citizens who speak up against various unlawful acts of such politicians lay themselves open to mob attacks.

Building Industry’s Structure & Functioning

The building industry cartel can be likened to the underworld, in the sense that there are rival gangs operating within. At any given time, there are several gangs that specialize in various rackets: redevelopment, slum rehab projects, high-rise towers with low-rise permissions, overnight slums, mangroves-destruction, playground adoption racket, private land-grab, build a school on a reserved plot, build a Jain temple (or mosque) near a building, etc.

Or it can be likened to the stock and commodity markets, where there are bull-trading and bear-trading cartels wrestling for control.

Or this industry can be compared with a predatory eco-system or a food pyramid. Let us elaborate on this theme.

At the top of the food chain are ministers, department secretaries, chief of MMRDA, Municipal Commissioners etc. who have the power to decide whether a new expressway will enter the city at point X or another point Y that is one kilometer to the east. This decision alone can determine whether Mr Rane’s hotel will become a super-hot property or Ms Kirloskar’s spacious land holdings will become much sought after. Anybody who gets accurate information about the expressway’s route three months in advance can make a killing by purchasing the surrounding lands from ignorant farmers. Also, there are great rewards for someone who can change the course of the expressway, routing it close to a large tract of land owned by the Garware family.

In the middle are the architects and civil engineers, who know exactly what illegalities are being committed, and how to commit them without getting into trouble. They sure-footedly go to the necessary departments, bending and fudging the DC regulations, and taking undue advantage of every loophole in the laws and rules. They are the ones who know exactly how to make a “flower-bed” look like a balcony, how to make a “dry-balcony” look like part of a living room, and how to make a chajja, car-park or “garden” look like legitimately saleable floor-space to a buyer. By creating two opposite flats that are waiting to be joined by enclosing the common lobby, architects encourage buyers to violate the law. By creating parking spaces that are simply waiting to be enclosed into a “garage” where an underpaid driver can take up residence, they contribute to the building turning into a slum by degrees. Without all the dirty tricks of architects and civil engineers, the builders would be clean and law-abiding folks!  But you never hear about these folks losing their licenses; that’s because they are the backroom boys. Mumbai’s municipal commissioner has put his finger on this malaise, and the architects are now crying foul! Read this news item: http://tinyurl.com/Penalize-architects

Also in the middle of the food chain are lawyers & Judges, who together ensure that citizens who approach the court never get timely justice — only tareek pe tareek, endless adjournments.  A panel of lawyers sit in most builder’s offices, with the job of defending them against numerous litigants. But unknown to most, the judges who sit in various courts are an important part of the building industry, defending the builders and making sure that citizens lose faith in the law. These judges, who are part of the cartel, dismiss public interest litigations against builders, and advise the litigants to go solve the drinking water problem instead!

At the bottom of the food chain are the peons and clerks, who scurry around like little greedy rats, routinely destroying or replacing inconvenient documents on behalf of the builders and architects, rendering laws useless and making citizens helpless. They can replace the entire layout plans of a building project, complete with stamps and signatures. They do it for a tiny price – a few thousand rupees — and they are almost never caught and punished.

This cartel makes impossible things routinely possible. How? Examples:

(i)            Cleverly worded policy decisions (such as ‘Tourism Development’) can create room for projects like Lavasa and Sahara townships

(ii)          Agricultural lands can be converted into non-agricultural by declaring the area a Special Economic Zone.

(iii)         Big corporates like Reliance are known to put their own employees in the office of Talati, Mamlatdar, etc. where land records are maintained. If a troublesome farmer refuses to sell his land, the entire file can easily go missing. Somebody owning land at a strategic location in Vasai-Virar region may wake up one morning to discover that the land records state that his father had sold the land in 1989 to Hitendra Thakur, thanks to Thakur’s salaried persons working in these departments.

(iv)        Everybody in Income Tax Department, Economic Offences Wing etc. knows that the builders will never sell property in 100% white. It is common knowledge that every builder, without exception, expects 20 to 30% of his payment to be in “cash”. And yet, the builders are never raided by I-T or EOW.

(v)          It is common knowledge that each builder has his own circle of money-lenders, investors and political patrons. Every industry insider knows who a builder’s “special friends” are. It is openly acknowledged that the moneys invested in the project are not above-board. And yet, these persons are never raided.

(vi)        It is widely known that some properties like the Matoshree Sports Club on Jogeshwari-Vikhroli Link Road, and the Atria Mall in Worli are illegitimate. Even the common cobbler across the street will tell you that they are the money-minting machines belonging to political parties like Shiv Sena. But no action is taken against them, ever. The prevailing motto is: See no evil, hear no evil, make money.

(vii)       Inconvenient documents or files regularly go missing from government offices, but people never point the finger of suspicion at those benefitting from such disappearances, i.e. builders and their cronies.

(viii)     Municipal corporations and courts – even Mumbai High Court — are ever-ready to regularize extra floors built in excess of permissions. Has the law been broken? No problem, regularize it.

(ix)        Municipal corporations, MHADA, courts and the police will routinely assist the builder in forcibly evicting a resident. However, these same authorities will never intervene in giving these flat-owners possession of their own house, against the wishes of the builder.

(x)          Agreements for redevelopment and slum rehabilitation are more-or-less thrust upon reluctant flat-owners, tenants etc. These agreements do not present all the choices.

(xi)        The very structure of the agreements between builder and buyer is inherently unfair. These are not contracts, they are super-contracts. Contracts have escape clauses, but an agreement with a builder has no escape for the buyer. Once a buyer signs on the dotted line, he has essentially given away all his rights.

(xii)       The above holds even more true of those who enter into SRA schemes and redevelopment agreement. The buyer practically signs away his right to legal remedy in case the builder cheats him. Because the builder’s basic rule is: if you disagree with me, I will never hand over your flat to you. You want to go to court against me? Go ahead, you keep fighting, and I’ll keep building!

(xiii)     The entire agreement with the builder is flawed at inception, because the buyer never gets all the facts about the product he is about to buy. That’s right, never. You may enter into dealings with the most reputed dealer in India, but he will never let you know up front all the things that you should know about your property. There are always surprises in store for you. Take the example of the Raheja Estate in Borivli East. People who bought flats there in the early nineties were taken in by tabletop models and beautiful brochures showing a spacious compound with only a few buildings marked “Phase –I, Phase-II, Phase-III etc.” The rest of the space was shown as “garden”, “club-house,” “jogging track,” “swimming pool”etc. But a couple of years after people moved in, they were amazed to find that more and more buildings kept getting squeezed into their spacious compound. Clubhouses, jogging tracks and gardens kept disappearing, as new buildings kept coming up… and the process continues till date. The compound keeps getting increasingly congested, and there is barely enough space for people to park their cars. K Raheja keeps selling every available nook and corner to other builders. (Doesn’t the state government know that this is the effect of its policy of continually raising the FSI and TDR rations? Of course it does!)

When the government withdrew from building houses, the assumption was that private builders would create housing for both rich and poor. But that assumption was false. Who builds for the poor? Do private builders pout up decent low-cost housing for the poor, or for the lower-middle-classes? (Forget SRA buildings, they don’t count because they are Public Private Parnetships.) Why? Is it that those who are not well-heeled deserve to live in slums? Is it that urban land is a luxury to be enjoyed only by the rich?

The state has abdicated from its responsibility to provide low-cost housing. Earlier, it had something called Housing Board in many states. In Maharashtra, MHADA’s flats were much sought after, overbooked months in advance, and allotment was by a lucky draw. So why did the government stop building low-cost housing, despite the existence of demand? Evidently, people at the top decided that the best policy was to stop supplying affordable homes, so that private builders would have no competition whatsoever.

Despite the obvious failure of private builders to provide decent and affordable housing, the State government is keen on looking the other way, because everybody in the cartel is getting rich. They are getting rich by artificially pushing up the prices, and creating inflation. That’s right, folks, the building cartel is creating inflation. How is it done? By the simplest tricks in the book: hoarding and artificial price-fixing.

“Investors” are flat buyers who hoard scarce living space. They create artificial scarcity by keeping flats locked for months and years after they are built. They refuse to sell it to people in need of houses at the genuine market-determined prices. For investors, houses are just another asset, like shares, commodities and gold. Having made large amounts of money in the stock market, or cash-rich businesses like restaurants, retail stores, medical profession etc., they are eager to sink it into property, where black money gets easily hidden away.

Even in times of low demand, builders never let down the investor. They will offer free cars with flat purchases, but they never lower their per-square-foot rates, because such a reduction will hurt their investor base. This real-estate market upholds all the markets, including the commodity markets. It provides the rock-bottom for money-on-the-run. In the long term, it forces the prices of all asset classes to move upwards, and never downwards.

The Building & Real Estate Industry is one of the key engines of artificially created inflation. At the risk of oversimplifying a complex economic subject, let me say this: Inflation doesn’t just happen, it is being created. Inflation is being created because it ups the net-worth of individuals and corporate owning large amounts of assets. It is being created because high-net-worth individuals are in charge of the government . It is being created because it immensely benefits the haves, and because power and money feed on each other and grow larger.  The fact that inflation crushes the have-nots is of no concern to the crorepatis who are ministers and members of parliament.

This is corruption, my friends — corruption at a grand scale, and clearly visible in the workings of the building construction industry. Corruption is not the mere paying of a bribe, or acceptance of a bribe. Unlike smoking, drinking and gutka, it is not just a bad habit that you can just eradicate with a ban. Corruption is not an infection that you can cure with a shot of antibiotics. Corruption is a way of doing everything differently. It is a different way of life, and a different world-view.

The ongoing campaign against corruption is good. Let us support it. But let us understand the many dimensions of what we – civil society members — are up against.

One Comment »

  • Satish Dhasal said:

    very informative and knowledge based info for the betterment of the whole community.