Real estate, unreal methods

Singur, Nandigram and Kalinga Nagar issue is one of industrial and infrastructural development at the cost of displacing sections of the agricultural population. The issue has deep relevance for the future course of progress of the country, writes Abhirup Sarkar.

Animosities over acquisition of agricultural land for non-agricultural uses have reached dizzying heights in West Bengal, Orissa and other parts of the country. In January 2005, several people were killed in police firing in Kalinga Nagar, Orissa. The feud had originated from an attempt of land acquisition for a mammoth steel plant proposed to be built by the South Korean steel major Posco.

HT Image

More recently, history has repeated itself in Singur and Nandigram, both in West Bengal. In Singur, the strife is over land acquisition by the state government on behalf of the Tatas for constructing an automobile factory. Most recently, in Nandigram, a mere rumour of land acquirement for the purpose of building an SEZ by the Indonesian Salim group has led to bloody fights between rival political bands and the  death of seven people.

The basic issue is one of industrial and infrastructural development at the cost of displacing sections of the agricultural population. The issue, which is being hotly debated both inside and outside the state and central governments, has deep relevance for the future course of progress of the country. Apart from crude economic calculations, there are problems with finer political, social and moral nuances that need to be carefully analysed.

As far as we can see, two fundamental questions are involved in the current debate. First, how far is it necessary, at this stage of development, to shift resources from agriculture to industry? In particular, how much should we worry about an unchecked and desperate sacrifice of agricultural lands imposing threats to future food security? Second, how far should the governments indulge themselves in the act of acquiring land, by force if necessary, from farmers and hand them over to profit-maximising investors? How far can we justify this infringement on private property rights?

The first question has a straightforward answer. For the employment-starved still predominantly traditional Indian economy, where an overwhelming majority of the labour force is struggling to earn a living in the agricultural sector, development entails growth of industry and services. Indeed, for the country as a whole, there is hardly any alternative but to shift labour from the low productivity primary sector to high productivity secondary and tertiary sectors. The globalisation endeavour has given a jumpstart to the industrialisation process. But this is yet to make a dent into the backwardness of a large section of the population. To drag this unfortunate lot into the mainstream development process, the country needs to embark upon an industrialisation drive on a much larger scale.

But industrialisation cannot be pulled out of thin air. To build factories, townships, roads, bridges, seaports and airports — all integral parts of industrialisation — one needs land. In a country like India, where the land-man ratio is pretty adverse and where most of the available land is already being used to grow food for the masses, any attempt to acquire land to build up industry and infrastructure must impinge on agricultural land. But that should hardly put a threat to our food security, for the fact of the matter is that the land requirement for industrialisation is minuscule in relation to the total agricultural land available in the country.

For example, the West Bengal government is contemplating acquiring around 1.25 lakh acres of land for its entire industrialisation drive (the Tatas requiring not even a thousand acres for their automobile project) which constitutes less than 1 per cent of the total arable land in the state. The situation should be similar in other states as well. Thus, acquisition of agricultural land cannot possibly impose any threat to our food security.

The problem, however, is microeconomic. It pertains to those who are losing their land and their livelihood. It pertains to the tillers of the soil and to others who depend for their daily bread on the appropriated land, to owner-cultivators, sharecroppers, landless agricultural labourers and even small local traders whose economic existence had so far been rooted in the tiny plots of land that are proposed to be handed over to the industrial investors.

In Orissa, West Bengal and some other states the government and political organisations are intervening in a big way to make sure that unwilling sellers do not impede quick land transactions. This is certainly important for attracting actual investors to the state and for sending the right signals to distantly potential ones. But the trouble is that this act of intervention, this feat of land acquisition by special power — by force if you will — is blatantly violating property rights. We have seen this violation in Narmada, and now we see it in Kalinga Nagar, Singur and other places. This brings us to the second question: how far should the government involve itself in acquiring land, especially for private investors whose interests are strictly confined to narrow profit motives?

Ronald Coase of the University of Chicago had a Nobel winning theorem which could be of relevance in the present context. According to the Coase theorem, initial distribution of property rights does not matter provided property owners can freely transact with one another. Indeed, through free market transactions they would reach the social optimum where the person who has the greatest use for a property would pay a suitable price and acquire it.

In the present context, the Coase theorem would imply that if the initially unwilling farmer were offered a high enough price, it is most likely that he would sell his land voluntarily. And if the government had allowed the investors to freely acquire their land by directly bargaining with the owners of the soil, not only would there be a smooth transfer of land but also the market would have ensured an efficient outcome.

Coase theorem, however, is unlikely to be relevant for land acquisition in India for a couple of reasons. First, small sellers of land are not in a position to bargain successfully with big multinationals and the government has to intervene to protect the interest of the small sellers. Second, if investors are asked to acquire land directly from the market, it might lead to speculation, holding up of land in the expectation of higher prices and unnecessary delay. The delay might even compel the potential investor to pack up and go elsewhere to set up his factory which, in turn, justifies government intervention in the process of land acquisition.

The only thing that needs to be ensured, however, is adequate compensation. Compensations are important not only because the government, which is acquiring land in the name of public interest, has a moral responsibility to compensate the loser, but also because the loser is the least likely candidate to get any employment in the factory to be set up by the investor. Moreover, the entire transaction process has to be made transparent. For, if land is acquired in public interest, the public has a right to know exactly what is going on.

Abhirup Sarkar is Professor of Economics, Indian Statistical Institute, Kolkata