Prime Minister Narendra Modi’s great ambition to build a modern India through 100 new smart cities, 200 new small airports, and over Rs. 2 lakh crore worth of new highways and bridges, is running into rough weather due to one contentious issue - acquisition of land. From India’s first planned smart city - Dholera in Gujarat - to Andhra Pradesh’s new capital near Vijayawada, farmers in the thousands are opposing the state move to acquire their ancestral land even at tomorrow’s prices. The reason is simple. Land is their livelihood and perhaps their only property, and who will part with their only asset, especially when they realize that others will make a killing in the near future at their expense? The only way out for Modi is to ensure equitable development for these farmers, by ensuring that they continue to be part-owners of their land by giving them investments in whatever projects are coming up here.
The road show is over. The highest-profile inbound tourists came from China and Australia, while Narendra Modi himself went to Brazil, Japan, & USA. Now, it is time for execution to start. Where will it all begin? Re-auction of coal? Pan India solar? Digital highways? Or BJP’s historic favourite - roads and bridges? Whatever the opening crackers might be, this is going to be full-fledged fireworks.
Market, as usual, has already run much ahead, in anticipation. Even while Sensex and Nifty pauses to catch breath from the uphill climb, FIIs and DIIs are mopping up every stock that has built at least one road or bridge somewhere, sometime. Companies that have made loss-making a habit since 2008 are the new flavour of the season. After all, what to worry, isn’t that mega push - the push of development promised by Modi - coming?
Supreme Court termed coal as the ‘King and Paramount Lord of Industry’. While it is true, expect the biggest rush to be for another Lord. Modi’s plan for 100 Smart Cities and Gadkari’s Rs. 2 Lakh Crore infra push all hint at who the greater lord will be. Google Autosuggest suggests that real estate sharks have already smelled blood, with one of the favourite searches doing the rounds being ‘100 new smart cities in India list’. For many, life would have been easier, if there was such a list published. Yes, the new lord is going to be land.
This presents a unique opportunity and challenge for Modi and his team. The opportunity is obvious. The challenge too is reasonably clear, that is, how to ensure equitable development?
Now, there is an school of thought that believes that equitable development shouldn’t be an aim, but a side-effect that will invariably follow development. Everyone from Dr. Manmohan Singh to P Chidambaram to Arun Jaitley to Narendra Modi, are in a way believers of this theory of economic liberalization and free market economy. Lift up the GDP and the GDP will lift up the poor.
But, internationally, this philosophy is getting debunked more and more, and is now considered as the trickle-down trash. If you need proof, look no further than the need for Swachh Bharat Abhiyan. While the video of India’s Prime Minister sweeping Valmiki Colony was a poignant one, and TV channels were blasting stage decoration workers at Modi’s various events that day, for leaving behind trash after the functions, something shouldn’t be forgotten. It is a well-known fact that the most clean countries are the ones with least income disparity, the best example being the Scandinavian nations. In other words, cleanliness is a natural side-effect of equitable growth.
Different theories have been put forward on how to ensure equitable growth when it comes to land acquisition. Without going into the merits or demerits of such ideas, it would be fruitful to cite just a small example called Amalner. Not that the story of this small town in Jalgaon District in Maharashtra, 350 km northwest of Mumbai, is not well-known. It has been celebrated in the media, right from local media, to English media, to Wall Street Journal, during the last decade itself.
But Amalner is so important a story that it needs to repeated often to our policy makers and entrepreneurs, lest they forget. And for those who have never heard of this story, it is an absolute must-hear.
The year was 1945. World War II had just ended. India was on the cusp of getting Independence. Jinnah was busy plotting for Pakistan. He was handpicking high-achievers from the Muslim community to join Muslim League. But a certain Ismaili Shia businessman originally from Kutch of Gujarat, and then residing in Mumbai, and whose family was into rice trading in India and Burma, declined Jinnah’s offer. He preferred India any day, and had plans to diversify from rice and set up a new business somewhere in Maharashtra. Let us call him the Entrepreneur, for the sake of all readers who are enjoying the suspense.
1945 saw his new tiny company of extracting vegetable oils being set up in Amalner, perhaps selected for its easy availability of land, yet proximity to Mumbai. The villagers were overjoyed. Finally development was coming their way. Our Entrepreneur too was happy and issued shares in his tiny company to many of the villagers, some shares in lieu of land or services rendered, and some for outright purchase at the face value of Rs. 100. Most of them got only a few - the typical lot size was 1 to 10 shares - as there were only 17,000 shares on offer, and our Entrepreneur held 80% of the total share capital of Rs. 17 lakhs. But some of the more enthusiastic villagers bought up to 100 shares each. The very next year, in 1946, the tiny company went in for its IPO.
In 1947, Jinnah would up his offer, requesting our Entrepreneur to be Pakistan’s first Finance Minister. But this Entrepreneur would decline Jinnah for the second time. Yet, as fate would have it, Nehru would nationalize all rice business in 1947, thereby making the new business the family’s only business.
Though the vegetable oil company prospered steadily, it was not enough to create any kind of trading volumes in BSE, the only exchange at that time. No broker or serious investor was interested in such micro cap firms run by a sole businessman. But he kept growing the business for the next two decades. But 20 years down the lane, in 1966, tragedy struck, and our Entrepreneur passed away, forcing the shocked family to call back his only son who was doing his graduation in USA. The 21-year old promptly returned and assumed office. He was as successful as his father, or even more, when it came to expansions and diversifications.
Mohammed Anwar Ahmed, a young resident of Amalner, in the 1980s, had all of 20,000 bucks with him as inheritance after his father’s death. The 27-year old was wondering whether to start a small trading business of his own, when he met a visiting broker from Mumbai, Satish Shah, who was on a mission to corner shares of this promising vegetable oil company in Amalner. Shah requested Mohammed’s help, to go door-to-door, and the broker bought shares from hundreds of villagers who were willing to sell it for a small premium. As a parting gift, Shah offered 100 shares to Mohammed at face value of Rs. 100 each, and Mohammed agreed, parting with Rs. 10,000 of his inheritance, and investing the remaining 10k to start a tiny trading outfit. The year was 1980.
Today, Mohammed’s investment of Rs. 10,000 in the small vegetable oil company of his hometown is worth an unbelievable Rs. 590 crore. Yet, he has not sold even one share during these past 34 years - through the dotcom boom and bust, as well as the 2008 fall. Because, there was no need to. Who will sell shares, when its dividend payout itself has been Rs. 120 crore over these three decades?
Unbelievable? Yes, but very true. The magic worked through 11 bonus issues and 2 share-splits that transformed Mohammed’s 100 shares to an unbelievable 96 lakh shares, each now valued at Rs. 615.
By this time, most of you have guessed which is this stock, and you are right, it is Wipro. Mohamed Premji and his son Azim Premji not only grew their tiny company into one of the world’s largest IT service firms, but respected their original partners, never allowing their tiny participations to be diluted, but expanding capital only through bonuses, thereby accumulating wealth for all.
Today, thanks to Wipro, Amalner is a city of many millionaires. There are hundreds in Amalner who hold ten original shares of Wipro worth 1000 bucks then and Rs. 59 crore now. And there are thousands who hold one original share in Wipro worth 100 rupees then and Rs. 5.9 crore now.
Indeed, one equitable business can transform a community. Amalner is not the perfect example for land acquisition per se, as much of the share allotments there were not for land, but it is perhaps the most powerful and dramatic example of what can happen if farmers remain part-owners of the projects coming up through equity participation. Only that will be true equitable development for all.