Monday, February 12, 2007

IN ALL UNFAIRNESS - Disappointments and disruptions in West Bengal
- Disappointments and disruptions in West Bengal
The author is professor of economics, Indian Statistical Institute, Calcutta
Much has been written on the comparative growth performances of India and China, but few have actually emphasized the role of property rights in creating the observed differences. The classical development process, which entails a shift of resources from agriculture to industry and services, requires, among other things, transformation of arable land into cities, roads, factories and airports. This, in turn, involves displacing farmers from their land and traditional livelihood, creating social tensions, riots and turbulence. Weaker property rights and authoritarian governments make the transition easier, at least in the short run. They help to quicken the course of industrialization and urbanization by making a coercive process of land-grabbing by the government look semi-legal and by suppressing voices of protest. Indeed, no one can miss the obvious connection between the swift pace of industrialization in China, its rapidly transforming villages into modern metropolises and its loosely defined farmers' property rights coupled with an autocratic government at the top.
Those who are entrusted with the important task of acquiring land for industrialization in India are probably realizing that the process of land acquisition here has got to follow a different path than that in China. For one thing, we have a democracy, however imperfect. And being a democracy, we have never fully capitulated our individual property rights to the faceless collective entity called the State. This, in turn, has made property rights deeper rooted in our country than in China. It has also made it mandatory for any economic transformation to go through the acid test of public consensus. More so for West Bengal where farmers were given user as well as ownership rights over land a couple of decades ago through carefully implemented land reforms. Now it will require a special effort to take those rights away from them.
How does one know if there is public support behind the recent land acquisition drive in West Bengal? How does one check if the farmers in Singur, Nandigram and other places are willing to part with their land? It is reasonable to assume that, barring a few possible exceptions, individuals do respond positively to price incentives. So if the prices are right, there is no reason why farmers, on an average, would object to the land acquisition move. This narrows down the query to the basic question: are the compensations announced so far by the government acceptable to the farmers?
Government sources reveal that in Singur an acre of Sali land — that is, land where a single crop is raised each year — is being offered a price of Rs 8.70 lakhs. For an acre of Suna or multi-cropping land, on the other hand, the compensation is Rs 12.76 lakhs. Is it enough compensation? If we put Rs 12.76 lakhs in a fixed deposit we can earn an annual interest of 8 per cent. This gives an annual return of Rs 1.02 lakhs or an income of Rs 8,500 per month, which is indeed a comfortable sum of money, more than double the income an acre of multi-cropping land can currently yield. So why should the owner disagree to sell his land?
One must realize that owing to inflation, while the real worth of Rs 8,500 will decay over time, the nominal income from land will keep on increasing roughly at the rate of average price-rise. Therefore, if the owner holds on to his land, he can hope to maintain his standard of living in future, but not so when he sells his land and keeps the money in a bank to earn interest. In other words, 8 per cent does not quite reflect future return on deposits; one has to subtract the rate of inflation from the nominal rate of return of 8 per cent to arrive at the real rate of return. The current rate of inflation is over 5 per cent. So subtracting this number from the nominal rate of return, one gets a real rate of return of 3 per cent. At this rate of return, the inflation-adjusted monthly income from a deposit of Rs 12.76 lakhs works out to be around Rs 3000, which is unlikely to exceed the current monthly income from an acre of multi-cropping land. Compensations, therefore, are not necessarily adequate.
One may add to this the predicament of the registered bargadar or sharecropper who is the actual tiller of the soil. A quarter of a century ago, land reforms had earned him a share of 75 per cent of the produce, provided he was prepared to bear the entire cost of cultivation, along with a guarantee that he would never be evicted from his land. The merciful masters of the state, however, are unable to keep their promise; the bargadar is now evicted from his land and he is being paid only 25 per cent of the sales proceeds. Indeed, if his rights over land were interpreted in the true spirit, he should have got 75 per cent and not 25 per cent of the compensation.
One may add further to this the condition of the unregistered bargadar and the landless labourers who have been promised nothing from the sales proceeds so far, and one would get a feel of the frustration and desperation prevailing in the villages where land is proposed to be acquired. Bargadars, registered and unregistered, and landless labourers constitute the overwhelming majority in the pool of village labour force.
But this is not the end of the story. Even to an owner-cultivator of the soil, land is worth much more than what its market value actually reflects. The market value merely reflects the sum of discounted incomes land can yield in future. But to the owner-cultivator, land is an entitlement to work. He would have remained partly unemployed over the year if he did not have any land. He would certainly like to get compensated for this benefit, in addition to the market price of land, when he is parting with his means of livelihood.
The crux of the matter is that a fierce competition is going on between the Indian states to attract private investment in an environment where fresh investment has an inclination to flow to already developed areas owing to increasing returns. The industrially disadvantaged regions like West Bengal are, therefore, competing with a handicap. In addition, the left rulers in Bengal have the task of undoing its past ill reputation of investor unfriendliness. All this, taken together, has the made the government somewhat over-zealous. Investors are being offered land at throwaway prices, so much so that the government has not been able to gather up the courage to reveal the actual price at which land is being handed over to the potential investors. But while one may accept the fact that at this initial stage of industrial take-off some subsidy needs to be given to the potential investors, it is not at all clear why the farmers should bear the burden of this subsidy. More so because the people displaced from their land and livelihood are among the least likely to benefit from industrialization at once.
Justice demands that the burden of subsidy be borne by those who are likely to derive an immediate gain out of it. This points to the privileged layer of the society which has the necessary education, skill and finance to take advantage of the emerging industrialization process. We propose that an industrial cess be temporarily imposed upon these people to mop up resources to finance the cost of industrialization and the displaced cultivators be offered a generous package of compensation and rehabilitation. This will not only be fair but also prudent, for it will reduce disappointments, discontents and disruptions.