Compensation the key issue in the land debate

N. Ravi
The Hindu, 1 February

The immediate imperative would be to drastically overhaul the system of compensation for farmland, substantially raising the amounts, both to play fair by the farmers and to overcome the political opposition to land acquisition.

LAND MAY well emerge as the major resource of contention between the urban and the rural sectors, with a coalition of anti-development crusaders, groups concerned over the dislocation of farm families, those worried about the impact on agricultural, particularly food, production, protectors of farmers' interests, assorted do gooders, and plain political opportunists making common cause against the acquisition of farmland for industry. Because some of the claims and charges are so obviously exaggerated, it may be tempting to dismiss them and move ahead with the conversion of large tracts for industry, housing and commercial uses. Yet such views even if wrong headed at times are held so strongly and with such conviction that the only politically feasible course would be to engage them in discussions and adjust public policy to address their concerns.

The underlying theme in the debate is the question of legitimacy — the government, industry, housing and real estate developers are regarded as land grabbers, threatening to disrupt the lives of farmers. Yet, there is nothing to suggest that agriculture is the only legitimate or even the most obvious use of land, and indeed housing and habitat may well lay claim to priority.

When Finance Minister P. Chidambaram spoke of the "sacred ties" between the farmer and the land, it is true only in the sense that the farmer lives and works physically on the land, as have several generations before him, and land is very often his only tangible asset. Beyond that, it would be misleading to romanticise the hard life of the farmer and seek to keep him tied to his minuscule holding. The average size of the holding in India is 1.41 hectares, which even with the most advanced agricultural technology will find it difficult to support a family at any level above poverty.

Even if the large scale transfer of population out of agriculture is an inevitable part of the development process, would not the conversion of farmland to industrial, residential and commercial uses affect food production? Large scale conversion of cultivated land would certainly over the long run cut into agricultural production. Such a concern emerged in China in the 1990s when spurred by the "real estate craze" and the "development zone craze," local authorities scrambled to build up huge land banks in the hope of attracting industries. Between 1988 and 1996, 1500 square kilometres of farmland and 400 square km of natural vegetation had been nibbled away. Alarmed at this scale of loss of farmland, the Chinese government called a halt to unregulated conversion and tightened land use regulations, introducing penal provisions as well.

Considering the scale on which it is happening in India, however, there is hardly any cause for worry in the immediate or even the medium term. The country's geographical area extends over 329 million hectares, of which the net sown area is estimated at 142.82 million hectares, 63 per cent of it rain-fed. While unplanned conversion of agricultural land for residential and commercial uses has been going on continuously on the periphery of the towns and cities, the current debate focuses on the conversion of large parcels of farmland for special economic zones and large industrial units. According to figures compiled by the Federation of Indian Chambers of Commerce and Industry, 237 formally approved SEZs together would take up just 37,400 hectares, and not all of it fertile farm land. Such a loss would hardly make a dent on the total cultivated area, and indeed considering that farm productivity in India is very low by international standards, it should be easy with marginal improvements in farm practices to make up for an even substantially larger loss of cultivated land, both irrigated and unirrigated.

Were the acquisition and conversion to be taken up by industries or developers, public policy debate would be confined to land use planning and protection of the environment. But with the state using its power of eminent domain to compulsorily acquire the land, develop it and sell or lease it to other private parties, the issue of the state favouring one section over another comes to the fore. Eminent domain is used the world over and is recognised as a legitimate instrument to promote economic development even in the United States where the protection of private property rights is strong. The larger public benefit including the creation of jobs and the generation of higher tax revenue is seen as overriding private property rights. Yet, there is something intrinsically unfair in the state taking property from A against his will and passing it on to B, another private person who can put it to more profitable use. Most cases of land acquisition in India offend the principles of equity as they involve the compulsory acquisition of land from the weaker farmer at low prices for transfer to industries and builders who reap huge gains from the appreciation in land values after development.

The Land Acquisition Act of 1894 under which land is still being acquired for public purposes allows the state to develop the land and assign it to private parties and the Supreme Court has also upheld such transfers.

Even if legally sustainable, is compulsory acquisition for developing land for industry, housing, and commercial uses justified on public policy grounds? Ideally, builders and industries should be left to acquire the land they need directly from willing farmers, with the state retaining control over land use planning for orderly development and protection of the environment. Very often, there are doubts over the title, and land tied up in prolonged court cases, public land occupied by squatters, non-transferable land owned by such entities as temples and trusts, and land used in common by the people exist by the side of privately owned plots, making it virtually impossible for a private purchaser to consolidate them into one large, usable tract.

Compulsory acquisition often cuts through these tangles and provides the subsequent purchaser or lessee with a clear title.

A second and more important reason for the use of compulsory acquisition is that land development has become a vital part of the overall development strategy of the States, particularly in the context of the competition to attract investments. If a State were to leave industries to fend for themselves, it would be a totally unattractive destination for investment, given the difficulties a new venture would face in acquiring land. State industrial development agencies compulsorily acquire the land, develop it and build up land banks from which they could readily offer consolidated tracts to industries that come in.

Because the change of use from agriculture to residential, industrial or commercial uses increases the value of the land substantially (the "conversion multiplier"), land development should be an attractive proposition for farmers. This indeed is the case in other countries where public policy seeks to counter the trend and retain farmland either through regulations or by offering tax benefits to farmers who keep land under farming, as in the United States. In India, as farmers hardly gain from the sale of land for other uses, there is little incentive for development. The Land Acquisition Act on paper provides for fair compensation: in addition to the market value (the price at which a willing seller would sell to a willing purchaser), it provides for damages to the land from acquisition, the resettlement costs to the farmer, and a solatium of 30 per cent of the market value to compensate for the compulsory nature of the acquisition. In practice, this process is riddled with corruption and is dilatory. The market price is frozen as on the date of publication of the notification of acquisition and as the time gap between the notification and the actual transfer is long — at times even 20 years — and prices rise several fold meanwhile, the farmer is invariably left with a sense of having been cheated.

Denied gains

The first and the immediate imperative, therefore, would be to drastically overhaul the system of paying compensation for farmland, substantially raising the amounts, both to play fair by the farmers and to overcome the political opposition to land acquisition. The very philosophy of the Land Acquisition Act denies the farmer any potential increase in the value of the land from conversion to industrial or residential use, allowing only State government corporations, builders and developers to reap the benefits of the appreciation. It specifically provides that in determining the compensation the court "shall not take into consideration ... any increase to the value of the land acquired likely to accrue from the use to which it will be put when acquired." Unless the gains from land development are shared with the farmers in a substantial measure, the system would remain unfair and would be unsustainable politically.

The second task would be to develop efficiently functioning land markets, combined with an effective and imaginative system of land use planning to enable orderly development and the preservation of open and green spaces. The current planning systems lack technical support and by vesting an inordinate amount of discretion in bureaucrats and political officials, are tailor-made for abuse and corruption. Their ineffectiveness can be seen in the growing sprawl around most cities. Effective physical planning of land use, making available land for industrial, residential, and commercial use on a larger scale and the development of sale and leasing markets would ease the land constraint that is threatening to hobble the economy.