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To not land in trouble

The ‘Haryana model’ for land compensation is farmer-friendly. But it too needs restructuring, says Pranab Bardhan.

india Updated: Mar 06, 2011 13:14 IST

In the last few years in different parts of India the issue of land acquisition has become politically explosive. This isn’t surprising as land, one of the few assets possessed by large numbers of people, particularly in rural India, is rising disproportionately in potential value as commercial and industrial development picks up, as there is never a dearth of real estate magnates, land speculators, local mafia, their political patrons and collaborators — who try to cash in on the bonanza of rising value, depriving the owners of their due — and of political opportunists — who try to capitalise on the discontent the issue generates.

In the wake of the most recent agitations around land acquisitions in Aligarh and Agra, the top leadership in the Congress has now come out endorsing the farmer-friendly ‘Haryana model’ for land compensation, with support already expressed by many industrialists, and modification of the Land Acquisition (Amendment) Bill, currently stalled in the Lok Sabha, on those lines. The Haryana policy includes, in particular, an offer to farmers of long-term annuity over and above the lump sum compensation for the land acquired.

In the last couple of years I’ve suggested in different newspaper columns my ideas about an annuity (sometimes I’ve called it a monthly pension for farmer retirement) in this context. The ‘Haryana model’, if widely adopted, will be a step in the right direction. But I think it still leaves several questions unanswered.

Where will the money come from, particularly in states less revenue-rich than Haryana? If the land is acquired for public infrastructure projects (like the Yamuna expressway), it has to be largely funded through a betterment levy on all surrounding landowners who will benefit from their unearned rising land value. If the acquisition is for private, commercial or industrial projects, I had suggested the annuity to be ultimately paid out of a professionally-managed independent public trust fund (like the pension funds of large public entities in many countries) where shares of the new company are vested as part of the price of the land sold. Proposals, in some parts of India, by business houses offering their shares to the land-sellers are, for all practical purposes, non-starters, as small farmers will not have the knowledge or risk-bearing capacity to manage such share holdings. Also, in order to reduce the risks even for the public trust fund, shares of companies in many diverse projects have to be pooled, so that the fund isn’t brought down by the failure of any particular project.

How many shares are to be deposited for each hectare bought? Corporate buyers can always threaten to go to another state, thus setting off a race-to-the-bottom for the competing state governments in attracting capital. One, thus, needs some inter-state coordination in determining the rates of share payments. Maybe the whole country can be divided into zones (considering different aspects of commercial potential) with pre-announced area-based indices of value per hectare, on the basis of which both share deposits in the trust fund and the annuity payments are determined. In the case of mining projects the mining rights should be auctioned in a transparently competitive bidding process, and the proceeds are to be deposited in this trust fund for annuity payments to the dispossessed.

Given the scope for corruption at every step, the low trust in which people hold our politicians and officials, and the ease with which the issue of land becomes a matter of political football among rival parties (West Bengal is an ugly example), the whole matter of land transfer, administering of compensation and annuity, and resettlement should be handed over to an independent quasi-judicial authority or regulatory commission for each state, sufficiently insulated from the day-to-day political process but subject to periodic legislative review. The commission should regularly hold local hearings where all parties can present their cases and grievances.

All this means the stalled Land Acquisition Bill has to be completely overhauled before being taken up again. Its provision for 70 per cent buying of land through the market and 30 per cent through the state is unfair and costly. It’s unfair to the land-sellers, as in the market process the numerous uncoordinated small sellers are no match for the bargaining power of large corporate buyers, and the sellers will often face the intimidating and strong-arm tactics of the land mafia, which will try pre-emptive buying. It’s inconvenient and costly for the corporate buyer for whom the transaction costs of dealing with thousands of small sellers (particularly in densely populated parts of the country) are large, even apart from the problem of the occasional recalcitrant farmer in a contiguous plot holding up the process. The state has to be fully involved in the land transfer process, and its usual high-handed or corrupt tendencies have to be checked by strengthening the political accountability mechanisms at the local level.

The state should also be involved in organising training and skill-formation programmes for the people giving up their land — just promising them jobs, irrespective of qualifications, in the new projects is unfair to the employers and inefficient for the economy. It is also imperative for the state to arrange some compensation schemes and welfare payments to other, often poorer, stake-holders in the land (like sharecroppers and landless wage workers), who are usually bypassed by the market process.

Thus, the ‘Haryana model’ needs to be seriously restructured and supplemented, before politicians and industrialists start running with it as a magic potion.

Pranab Bardhan is Professor of Economics at University of California, Berkeley and the author of Awakening Giants, Feet of Clay: Assessing the Rise of China and India (OUP)

The views expressed by the author are personal