The Good Earth

Shifting From The Less Productive To The High Productive Sectors

Tarun Dutta
The Statesman, 19, 20, January

controversy is raging over the desirability of acquiring productive agricultural lands for the purpose of setting up industries. The issue is an old one but has acquired new dimensions in the context of the policy of rapid re-industrialisation of West Bengal adopted by the state government. To get a proper perspective of this current debate, it is necessary to remember certain significant statistics. At the time of Independence, agriculture contributed more than 80 per cent of the GDP and about 90 per cent of the population earned their livelihood from it.

Today agriculture contributes less than 20 per cent to the GDP and is the source of livelihood for less than 60 per cent of the population. In China, agriculture contributes about 13 per cent to its GDP and this is regarded as a sign of higher economic progress. In the USA 50 years ago, agriculture contributed four per cent and today it contributes about one per cent to the country’s GDP. This profile is common to almost all developing and developed countries in the world.

An exception

Agriculture and agriculture-based industries may contribute a substantial portion to the GDP of a country or a state if that area has substantial comparative advantage in the production of commercially important agricultural and agriculture-related products. This is an exception to the general pattern mentioned above.

The problem with agriculture is that the supply of one of its main factors of production ~ land ~ is limited and therefore even with the application of better technology like fertiliser and better agricultural practices, diminishing returns set in beyond a certain point. Also, agriculture has to be carried on mostly under controlled conditions due to vagaries of nature like floods and pests. Therefore, the rate of growth of productivity in the primary sector is generally less than in secondary and tertiary sectors where production is carried on under more controlled conditions.

The economic development of a country basically involves increasing the economic productivity of its people. The essence of economic development is to shift economic activity from less productive sectors to relatively high productive sectors. For most countries, this will involve shifting from agriculture to industry and services. In India it is currently estimated that per unit productivity is almost three times higher in industry than in agriculture. A fear that the pursuit of this policy will lead to shortage of foodgrains in not historically borne out by facts.

Agricultural productivity is affected today because of too much of labour in it and there should be improvement in productivity and production with the shifting of manpower resource away from agriculture to other sectors of the economy.

Another aspect of the matter is that today people everywhere including in the remotest villages come to know about the progress of science and technology and the benefits it confers on human condition. They all feel that they are entitled to such benefits.

Now, it would be very costly to provide first class education, health services, roads and such benefits to a dispersed rural population. Therefore, there will be an increasing tendency for the population to come to concentrated urban centres to get the benefits of science and technology. This will be a cheaper and quicker method of providing modern benefits to a larger population.

Further, the proposition that rich agricultural lands should not be acquired for the purpose of setting up industries has serious limitations. For, location of industry has to be decided upon on definite principles well known to economics. Without going into details, one has to mention the division and weight-gaining industries and weight-losing industries.

The former should be located near consuming centres and the latter near raw materials so as to minimise the cost of transportation. Apart from that, availability of skilled labour, specialised raw materials and appropriate markets often require that industries like an automobile factory are located near sea ports, airports and major urban centres.

However, there is no doubt that within the limits set by the above mentioned factors, agriculturally rich and highly productive lands and habitations should, as far as possible, be left undisturbed in preference for acquiring of lower yielding agricultural lands, if available. Also, large quantities of land locked up in closed and sick industries should be used for the purpose of setting up new industries in areas like Durgapur, Kalyani, Asansol and Barrackpore with good industrial infrastructure.

An expeditious exit policy laying down a fast liquidation process is, thus, essential for quickening the pace of industrialisation. In any case, it is necessary to appreciate the main concerns of farmers losing by the acquisition of their agricultural lands. As for example the uncertainty arising out of an immediate loss of income and livelihood and the disturbance of the socio-cultural pattern of their lives. It is the duty of the government to specifically address them.

Good publicity

Widespread public awareness must be created about the benefits that will accrue from setting up of major industry. In the process, the administrative machinery should seek the help of different political and social groups covering not only the farmers immediately affected but also farmers from the surrounding areas. A planned approach through the Land Bank Concept involving acquisition of large tracts of agricultural land in several locations for different earmarked industries (indicating their employment and additional income potential) may be desirable.

Through adequate publicity, the farmer must be made to believe that he will not be left in the lurch but a number of alternatives will be made available to him from which he could choose his new line of livelihood.For example, he may be given a new job in the neighbouring areas in an upcoming industry or a shop/ workshop and finance at cheap rate for new business and he will be given adequate monetary compensation including prepayment of a portion of it.

The problem is largely embedded in the archaic provisions of the Land Acquisition Act of 1894. It needs no reiteration that the methods of fixing compensation through the averaging of sale deed prices is unfair even as a starting point because of the systematic undervaluation of the deed price due to stamp duty and income-tax.

It is worthwhile to recall in this connection that the power of acquisition of land by the government flows from the doctrine of Eminent Domain under which the state is the ultimate owner of all lands which includes everything fixed to lands such as buildings, trees, ponds, etc. In most advanced countries the state can utilise this power only to acquire land for its own purpose and not for helping the setting up of private industries.

Competitive market

Indeed, private industries purchase such land as part of normal market operations. In a backward economy, however, there is a case for state intervention to encourage industrialisation and also to protect the interests of multiplicity of small farmers against the monopolistic power of big industry in an admittedly imperfect market situation.

One method to bring about a more competitive market situation could be the somewhat idealistic one to select three or four alternative big chunks of farm areas and to help formation of farmers groups in them and then encourage their bargaining with the big industries.

Such a set-up will ensure a situation of “bilaterally monopoly” as also some degree of competition between the alternative areas. But this method may be difficult to implement in a country like India where the information market is much more imperfect than the land market.

In many countries expert valuers are appointed by the industry on the one hand and framers’ groups on the other. If the two sets of valuers agree on a compensation package, that makes matters much easier.

If the two sets cannot agree, the president of a society of valuers or the government is empowered to appoint umpire valuers and the final compensation package is decided by the three sets of valuers working together.

However, in the face of inter-state competition for securing large industries, we may have to devise an adequate compensation package containing several elements and at the same time not throwing a heavy burden on state finances. As a first step the state government should negotiate with collective bodies of farmers to agree on a basic compensation package including solacium. Once an agreed package is arrived at, it should be given legal recognition under the Land Acquisition Act.

Secondly, there is another very important economic aspect, which must not be lost sight of. The land prices just outside the areas of acquisition will go up as a result of setting up of a major industry.

Hence, peripheral farmers will get “unearned rent” as the opportunity cost of such lands becomes much higher. It will be good economic logic if those farmers whose lands have been acquired are also allowed to get a part of such economic rent. This can be done by giving the land-losing farmers small bits of developed land at a concessional rate in the newly emerging set-up either by the major industry itself through employment-intensive ancillary units or by the government helping land-losers to set up their own units of economic activity or to encash such small bits for getting additional compensation.

In the development of new Bombay (Navi Mumbai) a variant of this method was tried for providing additional compensation to land losers. Each land loser was given a saleable scrip, which is like a share scrip allowing the holder additional say 10 per cent or 20 per cent more, over the normally permitted in any ward of the Mumbai metropolitan area except some congested or sensitive wards.

These scrips were like currency notes with security holograms and soon a competitive market in such scrips grew up and they got sold at much higher prices. This ensured that the government did not have to bear an extra financial burden but the land loser got additional money.

Bengal variant

In West Bengal, a variant of the method mentioned may be tried. Each land loser may be given unit scrips according to the quantum of land lost by him, allowing the holder of the scrip to hold and transfer a specified unit of land in excess of the urban and rural land ceiling under the law.

Forgery of such scrips can be avoided by taking proper security printing precautions. A thriving scrip market will grow up as those who want to hold large agricultural lands will be prepared to offer high prices for purchasing such scrips.

Finally, in the context of the policy of rapid industrialisation it is necessary to consider replacement of the present century old Land Acquisition Act by a much more equitable, relevant and workable piece of legislation based on the sound economic principle of linking compensation to the real opportunity cost of lands acquired for industrialisation.

The author is a former chief secretary to the West Bengal Govt.