Penn Calendar Penn A-Z School of Arts and Sciences University of Pennsylvania

How to Design the Next Land Acquisition Law

Sanjoy Chakravorty
April 6, 2015

A toxic mix of hypocrisy, amnesia, opportunism, ignorance, and paternalism has led to a mess on land acquisition legislation. The BJP is finding it difficult to gather enough support to pass its amendment to the Congress-made law and has begun sending mixed signals—maybe they will hold a joint session of parliament to hash this out; maybe they will reissue the ordinance that it tried to turn into an amendment; maybe the states can pick and choose, maybe they don’t have to adhere to the parts of the amended law they don’t like. It seems certain that whatever law we end up with now is going to be bad law. It will not serve the primary purpose of any eminent domain law—which is to make land available for the public good by overriding private interest where needed. It will fail to do so because in the name of protecting farmers’ interests, a self-serving political class has forgotten about the public interest.

To get to a better solution, it is necessary to understand the deep roots of the problem. The Congress law was created in response to widespread, sometimes violent, resistance to land acquisition methods that, for over six decades, were harsh, unjust, and unequal. For many communities, especially the most marginalized, these acquisition methods created widespread devastation, even wipeouts. There should be no doubt or dispute on this, as there shouldn’t be on the fact that the Congress was at the helm of this process and that all other major political parties went along. Neither should there be any doubt on the fact that over 90 percent of the acquisitions and conversions were for public sector projects. These are the facts, but appear to have been lost in a miasma of hypocrisy, amnesia, and posturing.

That was then, one could argue, but what about now, the last decade or so? Things have changed, of course. The private sector is a bigger actor and has greater land needs than before. The non-agricultural economy is increasingly more important, which means that the most acute land needs are in peri-urban regions. The mix of state projects has changed as a result, and the focus is on intra- and inter-urban infrastructure. And most important, the land market has changed fundamentally. Comparing apples, that is, equivalent locations in other countries, land in India is about the most expensive in the world; at the high end in metros like Mumbai and Delhi, more so at the medium end in peri-urban regions around India’s cities, and at the low end in remote rural regions. Almost everyone can sense this change even if they cannot quantify it; everyone, that is, except a political class that acts as if we are living in the land markets of the past. This could be ignorance, but is more likely to be hypocrisy.

How should a new acquisition law be designed in light of this history and present reality? Some of the clearest thinking on the subject is by Maitreesh Ghatak and Parikshit Ghosh. They argue that there are three possible broad approaches. “One is to let money speak—hiking minimum compensation amounts significantly to win farmers’ support. The second is to let farmers speak—making project clearance contingent on a referendum among affected households. The third approach is to let the bureaucrats and experts speak—getting it vetted by an empowered committee doing its own social cost-benefit assessment.” The problem, Ghatak and Ghosh argue, is that rather than being alternative methods, the Congress law uses the “kitchen sink” approach and makes these complementary methods. All are now in the law. The result is what I had argued when the bill was being debated—a law “that carries within it the seeds of its own destruction.”

That destruction has begun with the BJP’s proposed amendment. The core purpose of the amendment is to remove the “farmers speak” and “experts speak” elements from the Congress law in some situations—ones where the BJP expects the most private sector activity, specifically in vaguely-defined “industrial corridors.” Note that even the Congress law doesn’t allow farmers to “speak” in public sector situations. The unstated assumption in the BJP amendment is that farmers will not fight this because compensation rates are so high—20 to 400 times higher, according to my calculations, than the net present value of all future income from agriculture.

It is vital to understand that farming in India simply doesn’t pay. The average net income per acre is among the lowest in the world—well less than Rs. 10,000 per year. Therefore, the productivity-based price of farmland should be no more than Rs. 1.5 lakh per acre on average (for context: the average price of farmland in the U.S. is about Rs. 1.4 lakh per acre). In reality, almost nowhere in India is the price of farmland less than Rs. 5 lakh per acre now, and in much of advancing India (around cities and in prosperous rural regions) it is Rs. 1 crore and more per acre. That is, farmland prices in India are driven by scarcity, not productivity.

It is hard to imagine that farmers will refuse payouts that are dozens to hundreds of times more than they can earn from agriculture. That is the basis of the BJP amendment. But if farmers do refuse these payouts—as the opposition argues they would or could—one has to conclude that there are significant information asymmetries at work: farmers are not well-informed about what they stand to gain; or they are afraid that corruption and middlemen will make the real gains; or they are fearful of their own ability to handle so much money (and so much change). Certainly, there is a section of the political class—the top leadership—that stands to gain from maintaining and even furthering these information asymmetries and fears. The losers are everyone else—the farmers themselves and society at large (by not converting land from its least productive to higher value uses).

Self-serving and cynical it may be, but this political opposition is a reality. How to deal with it?  There are two ideas on the table: the “kitchen sink” Congress law and its tweaked BJP amendment. Neither is good enough, because neither has a good method for setting prices in the world’s most expensive land market. But I have come to the reluctant conclusion that wholesale reform of the Congress law is politically infeasible right now. Therefore, the path forward in the short-term is to encourage states to choose their own paths—(a) accept the BJP amendment, (b) stay with the Congress law, or (c) create even more incentives and protections for land-losers than in the Congress law (which the law itself allows). One should see a range of choices emerge, from fundamentalists like Mamata Banerjee in Bengal (who will not let the state enable land acquisition in any form), to middle-roaders like Naveen Patnaik in Odisha, to pragmatists like Anandiben Patel in Gujarat. I suspect that some especially astute leaders will recognize that they can extend this categorization to the district level—use the BJP method for the more urbanized and the Congress method for the less urbanized districts. For now, I suggest, let the states stake their future on their rhetoric. The results should become obvious in a few years.

However obvious the results are to us, the experts, they will not matter until they are obvious to everyone. Hence, it is essential to do the hard work of mitigating the information asymmetries that have enabled both the past injustices in land acquisition and the present legal follies.  There is a parallel conversation taking place on digitizing land records; some states have made some headway on this project. But this is a very large and rather difficult enterprise. More feasible and more immediately necessary is the project of making information on every future land transaction record public—all private sales and all government acquisitions. Let everyone know what the “nominal” prices are; that alone should begin to blow the lid off the septic tank of corruption and land mafias. Let everyone know who is buying and who is selling and exactly where this is happening. Let everyone know what the government is paying for acquisition. Put this information online and display local information in every tehsildar’s office. Send copies to panchayats and gram sabhas. At the same time, create an institution to promote financial literacy, especially for people whose land is acquired. Help them manage their windfalls—because there is no doubt that acquisition will create financial windfalls for most farmers.

We are stuck with a paternalistic state. The paternalism survives by keeping citizens ill-informed and is embedded in the DNA of the new land acquisition law and the reactions to its amendment.  The old law lasted 120 years. This new one will last one to five. Another law will be needed soon. The citizens of India need the political leadership to enable an information market on the land market so that better-informed citizens can help formulate a better land acquisition law in the long run. Let that new law be based on better information than this one so that it can do the job of converting land to higher value uses and providing justice to all.

Sanjoy Chakravorty is a Professor in the Department of Geography and Urban Studies, Temple University, and the author of The Price of Land: Acquisition, Conflict, Consequence. He is a CASI Non-Resident Visiting Scholar.

India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania and partially funded by the Nand and Jeet Khemka Foundation. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI and the Khemka Foundation. IiT articles are re-published in the op-ed pages of The Hindu: Business Line. This article can be read here.

© 2015 Center for the Advanced Study of India and the Trustees of the University of Pennsylvania. All rights reserved.