Cannot build on a bubble.

Nandigram all over again? We all know how the present Chief Minister of Bengal, Mamata Banerjee agitated against Tata's Nano factory at Nandigram. So successfully that Tata left to establish the factory in Gujarat and now no one wants to invest in Bengal. Seems that a repeat of that fiasco is about to take place at Manesar in Haryana where Maruti, India's most successful car company, has been hit with a demand for Rs 5 billion as compensation for land procured for its factory. This factory manufactures diesel engines as well as its most successful models in the Swift range. While the origins of the dispute appear murky it seems that 602.4 acres of completely undeveloped land was acquired by Haryana Industrial and Infrastructural Development Corporation in 2002 and given to Maruti, for which Maruti paid Rs 1.1890 billion in 2008. The owners of the land were unhappy and litigation ensued. In February, 2011 the Punjab and Haryana High Court increased the rate of compensation for the land from Rs 2.815 to Rs 3.740 million an acre which means that the company may have to pay an additional Rs 5-8 billion in compensation. The Supreme Court has agreed. Maruti is already building a huge plant in Gujarat and may decide to shut down the plant at Manesar, handing the land back to the original landowners who will suddenly find that their land is not worth even a fraction of the value they are dreaming of. Also, 20,000 workers will lose their jobs and the Haryana government will lose Rs 80 billion in revenues. TOI, 29 July. All these disputes arise because the price of land in India has risen to completely unrealistic levels. One month back a house built on 800 sq yards in South Delhi was sold for Rs 850 million. At the same time a house in New York 1, built on 2 acres of land and consisting of 7 bedrooms with 7 bathrooms, was being advertised for $5.5 million which amounts to Rs 300 million. Clearly there is a humongous property price bubble in India which is underpinning inflation and putting downward pressure on the rupee. The only solution is to let prices fall to realistic levels as has happened in Spain, Ireland and the US. But then a lot of companies will go bust and banks will totter. Just as in the US and Europe. The Congress wants to protect property prices, control inflation, support the rupee as well as stimulate growth. Only a bunch of cuckoos will dream of growth on a bubble.