A Regulator for Land Acquisition

Economic Times, January 28, 2013

By Pradeep S Mehta

Land acquisition: An independent regulator can ensure fair returns to farmers

One of the most important challenges facing India is the development of its manufacturing sector in order to create more jobs. The 12th Five-Year Plan recognises these opportunities and offers strategies for achieving growth.

The National Manufacturing Policy and Plan have rightly emphasised this imperative by underlining why it is necessary to increase the contribution of the manufacturing sector from the current level of about 16% of GDP to at least 25% by 2025. To achieve this, we need to focus our attention on one factor of production: land.

Unfortunately, that cannot be either produced or enhanced. India needs a regulator for land acquisition for industries and infrastructure: both at the central and state level. Though land — and land revenues — is a state subject, there should be a model Act, a laAgricultural Produce Marketing (Development and Regulation) Act, and states must adopt it under local conditions, but adhering to the principles of a level-playing field.

The current land acquisition Bill talks about direct transaction between buyers and sellers of land. Given the fact that landholding patterns in India are largely fragmented, coupled with large-scale absentee landlordism, such direct transactions will be impossible as there will be huge transaction costs. The state has a legitimate role in land acquisition for industrial development and that should be done institutionally: as a facilitator through independent regulation against a control structure.

The Bill on land acquisition should be revised accordingly to upfront say why states should have a role in it by incorporating provisions for the institution of an independent regulator for land acquisition. The proposed regulator should address two central questions: (a) why are our farmers increasingly restive while parting with their land for non-agricultural use, and (b) under what conditions would they be a willing partner of large-scale industrialisation and infrastructure development.

It is not true that our farmers are averse to changes in landuse pattern. Setting aside isolated incidents that mostly happened due to political shortsightedness and short-term political gains, we have evidence when around 6,000 acre was acquired in West Bengal in the latter part of the last decade after the Singur fiasco.

This is also evident from the changing political scenario in states such as Bihar, Gujarat and Uttar Pradesh as our young population is getting tired of politics of identity and accusation and looking for space for politics of aspirations. Then why this political oneupmanship over the revised land acquisition Bill in Parliament?

The Bill is neither helpful for industrial development nor is it farmer-friendly. It will make both actual and transactional cost of land buy prohibitively high. Also, it will not guarantee the right return for our farmers and others dependent on land for their livelihoods. This political conundrum largely stems from lack of trust in our politicians.

Transactions cannot take place unless there is trust between parties. The proposed land regulator should build this trust between the buyers and sellers of land. Anumber of surveys in places such as Singur show that there are two most important factors why farmers are unwilling to sell land for industrial development. First is related to the size and use of agricultural land holding: smaller the size and higher the cropping intensity, more is this unwillingness.

Second, and equally important, there is uncertainty about future livelihood options, particularly for those farmers who have limited opportunities. Unless these two factors are addressed, land acquisition for industrial development will remain politically risky. Farmers will either be unwilling to sell their land or ask prohibitively-high prices that will make acquisition economically unviable.

A truly independent regulator, having an arm’s-length relationship with legislative and executive bodies of the state, will play a crucial role. The regulators should identify agricultural lands for industrial purposes and fix their price and other benefits to land owners. They should act as an interlocutor between buyers and sellers of land, and by dynamically engaging with all relevant stakeholders.

With the right set of information in place such as location, soil quality and cropping pattern, it is possible to calculate the correct price of a piece of agricultural land and estimate its future value over a period of time.

It is also possible to address uncertainties related to future livelihood concerns of our farmers. Long-term prospects in the form of creation of human capital and other assets must be available for tenants and farm workers. While immediate beneficiaries of changes in land-use pattern should bear the non-recurring, fixed costs of such offers and should also offer a part of future returns in the form of equities, the state should bear the costs of recurring benefits for a mutuallyagreeable finite period.

The most important job of the regulator should be to lower the transaction cost of doing business — in this case, acquisition of agricultural land for industrial purpose. They should reduce negative externalities or obstacles to make collective choice.

There should not be more than two distinct alternatives so that ranked preferences of individuals become a collective and community-wide preference. More political competition at the local level based on the principles of politics of aspirations will mean better functioning of this regulatory system .

The author is Secretary General of CUTS International.

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