Saturday, December 19, 2009

The real issues behind land acquisition

The real issues behind land acquisition

The real issues behind land acquisition

By Pranab Bardhan. The Hindu, August 1 2009

The opportunistic and partisan stalling of the Land Acquisition and Rehabilitation and Resettlement Bills in the Cabinet recently by Mamata Banerjee has provided an opportunity to rethink some of the important provisions of the Bills (which she is not concerned about, but should have been).

Under the prospective legislation, a company must first buy directly from landowners 70 per cent of the land required. The state steps in to buy the rest in case some recalcitrant landowners are holding out; even here, the sellers are guaranteed a 60 per cent premium on the average land price over the previous three years. While this is an improvement on the existing colonial land acquisition law, this is quite unsatisfactory, particularly from the point of view of stake-holders in agricultural land. Let us spell out the reasons:

First, while leaving the major part of the transaction to the market may stop the matter from becoming a political game of football in populist competitive politics (as has happened in West Bengal), it is an inadequate solution to a complicated problem. Even assuming that the purpose for which the land is to be transferred is a legitimate one from an economic and environmental point of view, Indian history is replete with instances of uninformed, cash-strapped peasants being induced to sell their land at nominal prices by the lure of ready cash from developers, speculators, and touts of large corporate interests. This is how many Adivasis have lost their land even in recent years. Even in the case of informed, market-savvy sellers, thousands of small, uncoordinated farmers are no match for a large corporate buyer in the bargaining process.

Of course, in many cases the State government did very little to get the landowners a good price; but there is potential here for community organisers (and panchayats) to get involved in ensuring a fair price. In particular, the provision of a 60 per cent premium on the past average price is not good enough. The average past price is for the land as agricultural land, whereas use for industrial or infrastructure purpose will probably multiply the value many times, the gain from which the farmer is deprived. So, over and above the value of the agricultural land being considered as a minimum floor of basic compensation, the farmers should be compensated with a share in the enterprise or company, so that they can benefit from future profits.

Of course, the poor farmer may not have the capacity to bear the risks of fluctuating share prices. Here the role of the state is to put the farmers’ shares of the new company in an independently managed trust fund which will bear the risks at the cost of some management fees. Out of this trust fund, the farmer should be paid a steady “pension” (or annuity) every six months or so. Given the large gap between productivity in agriculture and the new activity for which the land is acquired, the farmer can be assured of a reasonable stream of pension. This will go a long way in assuaging the anxieties of an uncertain future that the farmer may contemplate in selling the land.

Also, a regular pension may be more advisable than a one-off cash payment, which often tends to get frittered away. In case the land is acquired for public infrastructure building (where there may not be any direct company profits to be shared), the land should be given out by the farmer on long-term lease with the rent periodically readjusted in accordance with the current value of surrounding pieces of land and the rental increases deposited in a trust fund.

Secondly, a land sale displaces not just landowners, but other stakeholders as well (sharecroppers and agricultural labourers working on the land, for example). In West Bengal, the government had announced compensation to be paid to registered sharecroppers (which Ms Banerjee never paid much attention to). But the state also needs to be involved in some form of welfare payments (and job training and so on) to unregistered sharecroppers and landless workers.

Thirdly, the state often needs to get involved in building roads, providing electricity, water supply and so on for the new company, and this may require coordination in the land transaction itself between the transactors and the state right from the beginning.

Of course, politicians often lack credibility in any process of obtaining fair compensation to land sellers. Cases of politicians, middlemen, and contractors defrauding poor sellers of their compensation and resettlement rights are far too many. So it may be desirable in some cases to hand over the responsibility of determining fair prices and managing the process of transfer and resettlement to an independent commission, provided political interference with the working of such a commission can be minimised and enough opportunity is given to community leaders and organisations to serve in such commissions or present their cases at hearings before the commission, and to generally act as watchdogs in the whole process.

Thus, what is at stake with the new Bills is much larger and deeper than Ms Banerjee’s political gripe.

The author is a professor of economics at the University of California, Berkeley.