‘Too Many Rate Hikes will Kill Growth’

The real estate sector has had much to moan about in the last few months due to rising interest rates, dipping sales and largescale agitations over land acquisition. In an interview with 

Partha Ghosh & Ravi Teja Shar ma, KP Singh, the chairman of India's largest real estate company, DLF, says 'India is not proud of this sector' and calls for a new approach to urbanisation, even as he warns that rising interest rates will kill growth. Excerpts: 

How does the rate hike impact the real estate sector? 
The problems per se do not pertain to the real estate sector alone. It is about inflation. Philosophically, there are two views. The first is tame inflation but don't lose growth, as at the end of the day growth will create jobs and make it more inclusive. The other is do not allow inflation to cross beyond a certain limit without worrying about growth. I subscribe to the first. My feeling is that at the RBI, they are very conservative and follow a very traditional approach. Their belief is that if you increase interest rate, it will bring down inflation. That is not true. They need to increase the supply side too but it is simpler to increase rates. Too much increase in rates will kill growth, which will lead to a slowdown. 
Why are there so many problems around land acquisitions? 
Land is an emotional subject with a farmer in India because it is his only means of income. When a person is dispossessed of his land, there is a reaction and you have to deal with the reaction properly. You just can't deal with the reaction by giving him money. What is missing is rehabilitation measures, like what DLF did when we were buying 3,500 acres in Gurgaon in the 80s. We ensured that whoever wanted to carry on farming was helped to buy more land in nearby areas. The land acquisition policy has to factor in rehabilitation as part of the package and give potential value of land, jobs. If that approach is not taken, there will be resentment. This is what is happening in Noida today. It is a revolution happening in India today. 
Should higher compensation be given for land retrospectively? 
It might become a precedent for other such cases. Sometimes judgements like this could lead to very major issues. Retrospective increase in compensation is not the right way to do it as it could have large implications. We don't want to open the Pandora's box. 
What are the issues with real estate and urbanisation today? 
Real estate is one sector that India is not very proud of. We are sitting on the tip of an explosion. There is growth happening, which is resulting into expansion, development of more urban areas. According to a recent McKinsey report, 75% of new jobs are being created in urban areas and there is a large-scale migration of people. Urbanisation is the most important challenge before the country today. 
What should be the approach to urban planning in India? 
In urbanization, you think big because you are thinking decades and centuries ahead. In the 50s, the mindset was 'think small and manage shortages'. After 90s, when reforms set in, GDP went up and it brought in much more pressure for more urbanised centres. We need to change the philosophy but that is not happening. For that to happen, people have to have vision and in my view the young people of the future will start exerting pressure on governments for better living standards.

    When a person is dispossessed of his land, 
    there is a reaction and you have to deal with the reaction properly. You just can't deal with the reaction by giving him money. What is missing is rehabilitation measures, like what DLF did when we were buying 3,500 acres in Gurgaon in the 80s 
KP SINGH 
Chairman, DLF