The Missed Steps in the Growth Story

Friction issue: People protesting against the proposed nuclear power plant in Jaitapur clash with the police in Ratnagiri, Maharashtra
Friction issue: People protesting against the proposed nuclear power plant in Jaitapur clash with the police in Ratnagiri, Maharashtra, Photo: Deepak Salvi

FOR SEVEN long years, the UPA government has been seeking the elusive goal of ‘inclusive development’. Many of the measures it has enacted have been conceived in haste and nearly all have imposed costs on the exchequer far in excess of the benefits they have bestowed. But the draft Land Acquisition Amendment Bill, 2011, now before Parliament, could be an exception.

Future tense: A farmer in Gujarat’s Mahuva district who is facing displacement due to Nirma’s cement plant
Future tense: A farmer in Gujarat’s Mahuva district who is facing displacement due to Nirma’s cement plant, Photo: Vijay Pandey

The Bill dissociates the State from private purchases of land. It will only resort to land acquisition for public purposes (e.g. defence, infrastructure, industry, SEZs, schools, colleges and hospitals, where the investment is to be made wholly or in part by the State) and to complete land acquisition by private buyers if they wish to use the land for an approved public purpose and have been able to buy 80 percent of the land they need.

To tailor the compensation to the circumstances of those displaced, the Bill creates a grid of beneficiaries based upon two distinctions. The first is a three-fold classification of the displaced as land owners with a clear title to their land; labourers, tenants and sharecroppers who own little or no land but live off it; and Scheduled Tribes and others — mainly forest dwellers — who have no clear title but whose traditional rights to the land they live off was belatedly recognised by the Forest Act of 2006.

The second is a straightforward differentiation between those who own land and those who don’t but depend upon it for their livelihood. The intersection of these two yields six classes of displaced persons. The Bill mandates compensation packages for each of these six groups, but makes it clear that the landless and indigenous people with traditional rights will receive benefits under both heads of compensation.

While this interlocking system looks complicated, its application is fairly easy to follow. Land losers in rural areas will get a capital sum of four times its market value, Rs 2 lakh or a job, a homestead plot, a built-up house, and a lump sum to cover transfer and resettlement costs. Those who lost land in urban areas will get twice its current market value and similar relocation benefits.

Landless labourers, sharecroppers and tenants in cultivated areas will get all of the above benefits except for the acquisition price for the land. Finally, the Adivasis and other forest dwellers, who live off land in which they have customary rights, will get all of the above benefits plus an acre of homestead land. An appropriate amount of land will also be set aside for social and religious functions by the community.

The poor get the lowest price for land because they need the cash most urgently

These elements of the compensation package are not significantly different from what state governments have offered under versions of the Land Acquisition Act, 1894, now in force. But the new Bill contains additional elements that set it apart from the old Act. The most important of these takes a page from the compensation package that many states have adopted and promises to pay an annuity of Rs 36,000 in the first year and Rs 24,000 in each of the following 20 years to all categories of displaced persons, be they land owners, tenants and sharecroppers, landless labourers or Adivasis.

The Bill, however, compensates those who give up land in three additional ways: it gives them the option to receive a quarter of their compensation as shares (presumably debentures) whose value will appreciate with the rise in the land price. It returns a fifth of the amount of land acquired as developed — and therefore far more valuable — land. Lastly if the State resells the acquired land to a private developer, it has to give the original owner a fifth of the appreciation. This will apply to every resale within the first 10 years.

Finally, forest dwellers are offered an additional element of security by shielding not only their annuity from inflation but also by giving them an acre of land per family and land for various communal purposes.

These provisions are a huge improvement over the 1894 Act. But the draft Bill is not without its defects. Chief of these is that it doesn’t contain a single clause that requires the state authorities to consult, let alone obtain the consent of, those who are about to be displaced. Every decision, from the decision to acquire, to the assessment of its impact, to the determination and administration of the compensation, is to be taken by officials and the experts they nominate. The displaced are to get a public hearing before the acquisition is announced and a chance to present their objections to the Collector after it.

Leasing land, in short, will create synergy, where so far there has only been conflict

NOT ONLY will the Collector’s decision be final, but it will be subject to appeal only in a special Central or state Land Acquisition and Dispute Settlement Court. Paradoxically, therefore, the Bill could end up by further disempowering the displaced, because they will lose even the ability to delay acquisition by taking advantage of the dilatoriness of the judicial system that they have enjoyed so far. In fact, most of the clauses that deal with implementation are a carbon copy of the 1894 Act. Reading them, it is easy to imagine that the British Raj is still alive and well. It is therefore easy to foresee where the new Bill could run into trouble.

First, leaving private acquisition of land entirely to the market is highly unfair. History has shown that the poor get the lowest price for their land because they have the most urgent need for cash and the least withholding power. The rich are the last to sell their land and get, as a recent report in The Hindu pointed out, anything up to seven times the amount that the first sellers got. The rich also have the greatest capacity to approach the courts and delay the project. Indeed, an awareness of this is built into the 80 percent clause in the land Bill.

Second, the determination of land value on the basis of the past three years’ registered sales prices will fail to take into account the amount — usually 50-75 percent — that is paid in black money. Thus even four times the prevailing market value for rural land may in fact be only a little more than the actual market price. Twice the amount for urban land will, in some cases, be below it. Basing the valuation on the average of the past three years’ registrations will depress it further. Thus, this formula for valuation is certain to be contested.

Third, a single undifferentiated annuity will ignore differences in the quality of land being acquired. Thus, while it will be generous for some of the displaced, it will be considered grossly insufficient by others. More litigation is therefore likely to follow.

Fourth, the choice of 21 years as the period for the payment of an annuity is arbitrary and regressive. The loss incurred by the displaced will be permanent, so why should the compensation for it be temporary? What is more, the effect of terminating the annuity will be in direct proportion to the poverty and vulnerability of the recipient: Land owners who receive a capital sum in addition to the annuity will have had the time to use the money to start a business or educate their children. Those without land will not have this privilege. The forest dwellers, who live far from cities and education centres, will find it hardest to obtain alternative ways of earning a living for themselves or their children.

But the most serious flaw in the Bill is that no matter how generous the compensation sounds today, it will cut the owners and livelihood losers off from the wealth that will be created on the land in the future. Industries will grow and multiply, power generation capacity will be augmented, electricity tariffs will be hiked, toll rates on highways will rise, but not a single rupee of the increase in revenue will come to those who are giving their land to make it possible. In the end, while the proposed amendments may prevent the absolute impoverishment of the displaced, it will not prevent a deepening of their relative impoverishment in relation to other sections of society.

TAKING ALL of these together, it is a near certainty that land owners will continue to fight the acquisition to the limit of their capacity. This will frustrate to a considerable extent the most important goal of the proposed amendment — to end the inordinate delays in land acquisition that have given India the worst infrastructure of any comparable developing country and caused global manufacturing to shun India and go to China instead.

Had there been no alternative, the price in terms of delay, litigation and ill will would have been worth paying. Indeed the goal of the Bill is to minimise this as much as possible. But there is an alternative. All of these problems can be avoided by making just one change in the Land Bill. This is to acquire the land not through purchase or acquisition but on lease, and by replacing the 21-year annuity with a royalty calculated as a fraction (anything from a quarter to one percent) of the annual revenue generated by it in its new use, to be paid to the owners and their descendants in perpetuity.

The advantages of leasing are almost too many to enumerate. First, it will enhance the status of the land and livelihood of owners instead of diminishing it. The former will be regarded as lessors to the government. Tenants, sharecroppers, landless labourers and forest dwellers will become co-sharers in the royalty paid and therefore partners in development. There will be no termination of benefits, and these will not only be hedged against inflation but linked automatically to the growth of the economy.

Instead of delaying the land acquisition for development, they are almost certain to cooperate with the government in hastening it, for they will then become full partners and stakeholders in India’s development.

Last, but by no means unimportant, while the draft Bill will greatly increase the fixed cost of land to investors, therefore the risk they incur, a royalty will impose only a variable cost, a third of which will be set off against taxes. Leasing, in short, will create synergy, where so far there has been only been conflict.

Prem Shankar Jha is a senior journalist.


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