by Vivek Kaul
Private companies, which had previously been able to acquire land under the 1894 Land Acquisition Act by managing the system that prevailed, had to find a totally new way of dealing with things. And of course, they did not like it. This wasn’t surprising, given that the manufacturing sector had been totally dependent on the government for the acquisition of land until then.
The need to take the consent of 80 per cent of those affected by the project was seen as an irritant. It was felt that the Social Impact Assessment that needed to be carried out before the land was acquired would make the entire process difficult, complex and lengthy. Furthermore, before the 2013 Act came in, when land was acquired, rehabilitation and resettlement were not mandatory. The 2013 Act made this mandatory, and this would add to the cost of acquiring land. In fact, as Sunil Kant Munjal of Hero Motors put it: “We can pay, but don’t make us responsible for resettlement. That should be left to a government agency.”537 The industry also felt that there was a lack of clarity on the definition of urban and rural. Furthermore, they did not like the fact that the definition of affected families was way too broad.538
The business lobbies also issued statements against the 2013 Act, basically stating that this was not what they wanted. In a May 2014 press release, the business lobby FICCI (the Federation of Indian Chambers of Commerce and Industry) said: “Availability of land is a prerequisite for industrial development. However, the new Land Acquisition Act makes it virtually impossible to acquire land.”539
The fact that businesses were unhappy was understandable, given that they had had an almost free run when it came to land acquisition until the Act was passed. Nevertheless, civil society groups and those towards the Left of Centre were also unhappy with the Act. The feeling was that the Act did not do enough for those who were affected by land acquisition. One reason offered was that those living off the land being acquired (i.e., tenants and labourers) were not being adequately compensated. After the land was acquired, these individuals would flood the local market and drive down the overall wages of labourers and workers. There could be other issues, like groundwater depletion, loss of access roads, loss of business for artisans, and so on. The problem is that trying to reach out to everyone who is impacted by land acquisition raises issues of identification as well as damage assessment.540
This was, and still remains, an important consideration in an economy like India, where the disguised unemployment is very high.
The other criticism from the Left was that, even though the 2013 land acquisition Act had the social consent clause, the states could always get around it by offering land to private companies out of the land banks that they had acquired. These land banks would not come under the consent clause for the simple reason that they were not explicitly acquired for private projects.541
Other than these issues, there are other serious problems with the Land Acquisition Act of 2013. Section 5(1) of the Act makes it clear that “no irrigated multi-cropped land shall be acquired under this Act”. Section 5(2) of the Act points out that “such land may be acquired subject to the condition that it is being done under exceptional circumstances [and] as a demonstrable last resort”. At the same time, not more than 5 per cent of the multi-cropped irrigated area in a district can be acquired. Furthermore, every time irrigated multi-cropped land is acquired, “an equivalent area of cultivatable [sic] wasteland shall be developed for agricultural purposes”.542 Linear projects are not subject to these clauses.
This has supposedly been done to protect the food security of the country. The trouble is that nearly one-third of the area is cultivated more than once during the course of the year. This is particularly true about the land near the major cities, where the demand for agricultural land is the highest. Anyone establishing a manufacturing plant would ideally want to establish it near a city, where the chances of attracting skilled workers are the highest.
Take the case of Singur. There were other locations, like Kharagpur, that were also available. But a car plant would need skilled workers and engineers. As the Nobel Prize-winning economist Amartya Sen said in a 2007 interview: “It is… easier to attract engineers and managers to an industrial base near Calcutta for the Tatas than in Kharagpur.”543 This is because nowhere in the world does a skill-intensive industry establish itself in rural areas, simply because the right kind of people are not available.
In fact, the locations of great industry in Britain, cities like Manchester and Lancashire, were built on very fertile land.544 Given this, industry has always competed against agriculture. Also as Ghatak and Ghosh write: “This is particularly true in regions surrounding the major metros, where demand for agricultural land is the highest. The thinking behind such a proscription is difficult to understand, and its contradictions are similar to those of the public purpose clause. If the concern is that farmers might be given a raw deal, what matters is not whether the land grows one crop or three, but whether the compensation paid is enough to cover the value of the crop that would be lost. Since farmers in single-cropped regions are generally poorer and more economically vulnerable, the first egalitarian instinct should have been to erect a protective legal fence around their property instead of rushing to quarantine relatively prosperous multi-cropped land.”545
Believing that land acquisition for industry would lead to a shortage of food is an extremely alarmist view to have, and probably stems from the fifties and the sixties, when India did not produce enough to feed its citizens and, in the process, had to resort to imports.
But what was true then is not true now. In fact, India produces more rice and wheat than it requires. Data from the World Bank shows that 60.3 per cent of India’s land area is agricultural land. The bank defines agricultural land as the “share of land area that is arable, under permanent crops and under permanent pastures”.
Furthermore, India has the second largest agricultural land in the world. As the India Brand Equity Foundation, a trust established by the Ministry of Commerce and Industry, points out: “At 157.35 million hectares, India holds the second largest agricultural land globally.” Only the United States has more agricultural land than India.
What this means is that India has enough land dedicated to agriculture, and even if some of it is taken away for other purposes, there will still be enough land left for agriculture.
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An editor I worked with briefly while working for a personal finance newspaper was in love with solutions. His firm belief was that every article should have a solution because, otherwise, it left readers with a sense of incompleteness. And that wasn’t really required.
If I were to go with the same logic, I should be able to offer solutions to India’s land acquisition mess to ensure that you, dear reader, are not left with a sense of incompleteness. But I wish it were that straightforward. The basic problem with the land acquisition system, as it has evolved, is that the trust required to make sure that any system continues to work has completely broken down. And that is not going to be so easy to re-build.
The Land Acquisition Act of 1894 should have been done away with many years ago. In fact, with the benefit of hindsight, it is safe to say that India should have had a new land acquisition law after Independence. But the government of the day decided against it, and the Act was allowed to run for more than six decades after Independence.
The 1894 Act paid the landowner 130 per cent (since 1984; it was 115 per cent before that) of the market value of the land. And how was the market value calculated? It was determined on the basis of circle ratesxv or the value of the sale deed of a similar property. In large parts of the country, circles rates have never been a true reflection of the market value of land. As Ramesh and Khan point out: “It was also acknowledged that land values are, on an average, a sixth of their represented or book value as drawn out in the circle rate[s]. As one moved away from urban centres, the disparity became more striking, with land records not having been updated for decades in some parts of the country.”546
Also, it is worth remembering that the government itself determined the value of land, and did not appoint any independent evaluators to carry out the same. This was primarily because India continued to use a pre-Independence land acquisition law. The British ruled India and did not see any need to appoint evaluators. They could take what they wanted to. The Indian governments after Independence continued with the same tradition.
In countries like Thailand, the land is valued by independent licensed evaluators. In India, with the government making the valuation decisions, an independent valuation process never really took off.548 Furthermore, the system as it has evolved does not take a price input from the affected party, i.e., the landowners.549
This basically meant that even those who were paid for their land when the government acquired land under the doctrine of eminent domain did not get paid much. Also, since the 1990s, many such individuals saw governments acquiring their land and selling it to private companies, which made a killing in the process. Obviously, this led to the trust required for the system to function completely breaking down.
The 2013 land acquisition Act tries to correct this by offering landowners much more than simply the market price of their land. A multiple of two to four times of the market price and the value of the assets on the land being acquired needs to be paid by the government acquiring the land. The hope is that, with more money on offer, the opposition to land acquisition will go. This might be true, but it would lead to other problems. In fact, it already has.
As Chakravorty writes: “Any pricing system that is based on arbitrary multiplication of [the] ‘market price’ will severely constrain urban development…. The political problem of [the] resistance to land acquisition will go away—which is what the lawmakers want, no doubt—but an even bigger economic problem will be created.”550 Also, no attempt has been made to arrive at a price for the land by getting those whose land is being acquired involved in the process.
One solution is proposed by Ghatak and Ghosh in their paper. Their proposal is a fairly straightforward one. The government should conduct an auction to buy land. It will buy land from the sellers who offer the cheapest price. They explain this solution through the example of Singur, where the Tata Motors Nano factory was to be set up. They write:
The proposed factory was to occupy approximately 1,000 acres. Demarcate an area which is twice the size (say) of the project site, i.e., 2,000 acres. This should include the project site itself (to be referred to as the core) and a belt of additional farmland surrounding it, amounting to another 1,000 acres (to be referred to as the periphery). All owners within this operational zone of 2,000 acres will be asked to submit tender bids for selling their land to the government. The 1,000 acres on which bids are the lowest will be procured against cash compensation.... The last step of the process is to take land from farmers in the core who have not sold for cash and compensate them with the plots of equal size procured in the periphery.
While this is not a perfect solution, it is better than what is currently being done. It is also fair, given that the farmers who do not want to sell out will be given farming land in the vicinity. At the same time, it allows the price discovery process to take place.
The slowness of land acquisition has an impact on infrastructure projects. Take the example of the Delhi-Mumbai Industrial Corridor (DMIC). The project has been moving at a very slow pace due to the slow pace of land acquisition. As Amitabh Kant, the then director of DMIC, said in June 2014: “While acquiring land in Aurangabad, land prices went up by 5.5 times the market rates simply because landowners were not willing to sell at a lower price.”
The hold-out problem, wherein farmers do not sell as they are looking for a better price, has only got worse since the passing of the 2013 Act. The government not being able to buy land for public infrastructure projects is not the best thing that could have happened to India. Chakravorty estimates that land prices in rural India after the passage of the 2013 Act will be between Rs. 16 lakh and Rs. 60 lakh per acre. At this price, just the purchase price alone would provide an income that is around eight to 12 times more than the money that is currently being made from the land. In urban areas, Chakravorty expects the price to be not less than Rs. 3 crore per acre anywhere. In metros, this would be even higher.
Given the price and other requirements of the 2013 land law, the purchase of land has come to a standstill. Over and above this, the farmer, who, typically, owns the land that is acquired, looks at it as an insurance, as collateral against which a loan can be taken, an inheritance for future generations, and also as a matter of status and pride.551 Hence, the farmer does not look at the land as just something he uses to earn a living. It is a lot more than that. Given this, acquiring a large tract of land is not easy. Things become even more difficult if land is required at a specific location.
This isn’t good because any economic activity needs land. In fact, the state of Tamil Nadu has managed to get around the provisions of the 2013 Act. Tamil Nadu sought an exemption and received Presidential Assent to exempt three major categories from the 2013 land law. Land acquisition carried out under the Tamil Nadu Highways Act (2001), the Tamil Nadu Acquisition of Land for Industrial Purposes Act (1997), and the Tamil Nadu Acquisition of Land for Harijan Welfare Schemes Act (1978) will not come under the 2013 Act. This means that the consent clause and the social impact clause do not come into the picture there. Nearly 80 per cent of the land acquired by the Tamil Nadu government comes under these three Acts.552
It remains debatable whether this remains the best way to go about land acquisition. The Tamil Nadu model is more in line with the 1894 law, which the 2013 law replaced. This hasn’t been adopted by other states, fortunately.
In December 2014, the Modi government promulgated an ordinance which tried to dilute the provisions of the 2013 land law, in order to get land acquisition going again. The irony was that the Bhartiya Janata Party had voted in favour of the 2013 land law.
In fact, when the 2013 Act was passed, a senior BJP leader had admitted that the party knew that the bill would have a disastrous impact on the economy, but then “compulsions of electoral politics is such that you can’t be seen to be opposing any populist move”.553 This comment came after it took two governments six years to come up with a new land acquisition law. The process had started in 2007, and it took six years to come up with a legislation which satisfied all the stakeholders, which included the BJP.
The 2014 ordinance brought in the following changes to the 2013 land law:554
a) The thirteen Acts under which land acquisition could be carried out without the provisions of the 2013 land law applying were brought under the provisions of the Act.
b) Land acquisition carried out for projects in several areas was exempted from taking the consent of the affected families as well as from carrying out the social impact assessment. These areas were: a) rural infrastructure; b) industrial corridors; c) affordable housing; d) defence and defence production; and e) social infrastructure projects, which included public-private partnerships.
c) The term ‘private entity’ replaced the term ‘private company’ in the Act, so as to include other forms of ownership, like partnership, proprietorship, non-governmental organisations, and so on.
d) The definition of ‘public purpose’ was widened to include private educational institutions and private hospitals as well.
e) The 2013 Act had laid down that, if the land taken for a project was unutilised for a period of five years, then it had to be returned to the original owners or be subsumed under the state government’s land bank. The ordinance changed this to any period that was s
pecified at the time of the setting up of the project.
The hope was that these changes would revive land acquisition across the country. But nothing of that sort happened, as the government failed to get the changes in the ordinance passed as a law.
Article 123 of the Constitution empowers the President to promulgate an ordinance if Parliament is not in session, provided he is convinced that the situation demands it. Furthermore, an ordinance is valid for up to six weeks from the date on which the next session of Parliament starts, after which it lapses. There is no upper limit to the number of times an ordinance can be re-promulgated. The land acquisition ordinance issued by the Modi government was re-promulgated thrice. It was valid until August 31, 2015, when it was allowed to lapse. No steps have been taken by the government on this since then.
Given this, land acquisition in India continues to remain in limbo. The one thing necessary to get it going again is to overcome the trust deficit that has got built into the system. A major thing that needs to be done in order to build trust is to have proper land titles in place. In order to do this, states need to follow what the Rajasthan government has done on this front.
Also, land records need to be computerised and made accessible at the lowest level. What this would do is make sure that any buyer can see the chain of transactions before buying, thus leading to a little more clarity on the title, which is currently missing.555
Furthermore, the Change in Land Usage regulations need to go. This would make the acquisition process a little easier than it currently is. But it would also mean that the rents that the state government politicians and bureaucrats can extract from those who need land will have to come down. Hence, this is easier said than done.
Voluntary exchange is at the heart of good economics. But does that mean that the government should get out of the process of land acquisition altogether? Other than the problem of small plots and the lack of clear titles, private companies in India can rarely be trusted to go about land acquisition in a fair way. We are at that stage of development where many private companies are essentially run by crony capitalists.