New Agricultural Land Price Index Launched in India
A new, first of its kind agricultural land price index was launched in the national capital New Delhi on 2nd June 2022. The new agri-land price index will serve as a central, reliable reference for benchmarking land prices in semi-urban & rural areas of India. The new agri-land price index was developed by the Mishra Centre for Financial Markets & Economy at IIM-A (Indian Institute of Management – Ahmedabad) and agri-land marketplace company SFarmsIndia, the index is called the IIMA-SFarmsIndia Agri Land Price Index (ISALPI).
The land price index will make records of current agricultural land prices across the country & present data. This index is important in terms of benchmarking land prices in rural and semi-urban areas and serves as a reliable source that will signal potential conversion of agricultural land into real estate. Developing an index for land parcels is complicated due to clear price differences in listings which are caused by multiple factors, especially supply-demand balance. Thus, developing an agri-land price index is much more complicated than developing an index for financial assets.
ISALPI uses a regression based hedonic pricing method – the price is usually considered as the dependent variable while other attributes are considered as independent variables. This method of pricing ensures accuracy and addresses any disparities. Director of IIM-A, Professor Errol D’Souza said “With just over 200 million hectares, India houses 2% of the world’s cropped land but feeds over 15% of the world’s population. Recently, we have witnessed a surge in entrepreneurial interest in agricultural land and allied professions: From agricultural engineering to precision farming, from food technology to supply chain management and green energy. We believe it is the right time to launch such an index for India.”
Prashant Das of IIM-A, Project Lead & Associate Professor of Real Estate Finance, also said “the index would help the government in adopting more scientific measures for providing compensation for land acquisition besides helping financial institutions in underwriting of loan and insurance contracts. It would also ensure visibility in movement of agricultural land prices across the country. There is a surge in entrepreneurial interest in agricultural land and allied professions, this index will help in project planning.” He also added that investors would particularly find information from the index useful to assess previous records of risk & returns, which could be utilised for predicting future performance and decide their investment choices.
At the time of launch, ISALPI is based on land data from 6 states – Telangana, Andhra Pradesh, Karnataka, Tamil Nadu, Maharashtra & Uttar Pradesh as only these 6 states have accurate data so far. The data from other states will soon be added to the ISALPI. This index was developed with the aim of helping investors, financiers, real-estate developers, environmentalists, policy makers & local governments to help in instances like providing sufficient compensation for people whose land will be acquired for road expansion/widening.
Kamesh Mupparaju, CEO of SFarmsIndia said “SFarmsIndia has a focus on data warehousing and mining aimed at bringing agri-realty domain-specific AI capabilities to the market. The collaboration with IIMA to develop an Agri-land price index (ISALPI) is a step in this regard.” According to the current data compiled under ISALPI, agriculture land is the most expensive in Karnataka, while Telangana ranks 2nd most expensive of the 6 states for which data is available. The data computed was of 107 districts in the 6 states mentioned earlier.
Agricultural Technology or AgTech is a sector showing rapid growth. ISALPI could be the technology that could bridge the gap between farmers and technology. The developers of ISALPI are trying to show that agriculture is a promising field for technological development and advancement.
34 districts out of 107 were considered as ‘most expensive’ agricultural land prices, while 32 districts were classified as ‘median’ and the remaining 41 districts had ‘least expensive’ The average agricultural land price in Karnataka was ₹93 lakhs per acre, ₹81 lakhs per acre in Telangana, ₹77 lakhs per acre in Andhra Pradesh, ₹58 lakhs per acre in Uttar Pradesh, ₹50 lakhs per acre in Maharashtra & ₹47 lakhs per acre in Tamil Nadu from the data sampled by ISALPI so far.
According to ISALPI data, nearly 80% of agriculture households are self-employed and 70% of this group are in crop production. Returns from cultivation of agricultural land is generally between 0.5 to 2% of land value, which is too less from an economic standpoint. Capital appreciation for agriculture land is far greater, averaging around 30%. As more & more agricultural land is being sold, the developers of ISALPI had the intention of setting up a system which provides greater transparency and better understanding of how agricultural lands are utilised.
Data samples from 18 other states will be developed for ISALPI over the course of the next 12 months. This agricultural index is expected to offer better representation of the national context as well as offer a more granular index at regional levels. Some of the factors which were identified for determining the agriculture land price index were distance to nearest town/city, proximity to closest international airport, irrigation facilities at the location and so on. India has around 20 lakh hectares of agricultural land and due to the lack of information in semi-urban & rural areas, land acquisition (mainly for industrial purposes) has become a tricky issue to navigate.
