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A paternalistic law

The government does not need to get involved and broker land transactions between private parties

Written by Shruti Rajagopalan |
April 23, 2013 1:20:02 am

The government does not need to get involved and broker land transactions between private parties

last Thursday,political parties reached a consensus on the land acquisition rehabilitation and resettlement bill,2011 (LARR bill),which promises to protect poor farmers from opportunistic businesses acquiring land. Unfortunately,it is yet another carefully crafted wolf in sheep’s clothing. Purportedly an improvement over its predecessor,the Land Acquisition Act of 1894,the LARR bill is a paternalistic law enabling backroom deals between political and business interests in the guise of “public purpose”,while leaving individual landowners vulnerable.

There are three fundamental questions to consider while crafting any land acquisition policy. Is the acquisition for public purpose? Are private parties unable to contract for the said purpose? Does it provide principles of just compensation? The bill fails on all three counts.

Typically,when the state uses its power of eminent domain,land is acquired to provide state-provisioned goods,like roads,bridges,dams or public utilities,satisfying a public purpose requirement. Like the 1894 act,the LARR bill goes well beyond the conventional parameters of public purpose and allows for various kinds of land transfers from one private party to another. Instead of reverting to the traditional protections and allowing land acquisition by the state only for public use,it explicitly allows for land acquisition for public-private partnerships and for private companies producing goods and services for the public.

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Any law allowing for transfer of land from one individual to another leaves the door wide open for rent-seeking and lobbying by special interests. Worse,the LARR bill does not clearly define public-purpose projects conducted by private parties,and the department of land resources argued that the criterion for public purpose is satisfied when “benefits of the projects accrue to a large population”. Consequently,it is difficult to distinguish between projects satisfying genuine public purpose from backroom deals allowing businesses and politicians to collude and benefit at the cost of individual landowners.

The parliamentary standing committee rightly criticised the bill for allowing a “wide ambit for discretionary action by the executive amounting to arbitrariness.” It recommended that the bill exclude state acquisition of land for private firms or public-private partnerships,a recommendation that all parties have ignored. Given the extent of power in the hands of the executive,the land acquisition policy is an easy target for interest-group capture.

Is there really a need for the government to get involved and broker land transactions between private parties? The conventional defence of the power of eminent domain,and its use for public and private parties,is to overcome the holdout problem among strategically acting sellers. All over the world,private companies have assembled land for large projects by secretly purchasing land over time. Most countries do not allow for the use of eminent domain power for private companies,and this does not hamper the private sector’s effectiveness at assembling land.

In the all-party meeting,opposition leader Sushma Swaraj warned that the “land mafia” was on a buying spree around the country,anticipating big benefits after the bill was passed. If there is,indeed,a “land mafia” capable of assembling large parcels of land for profit,why do we need the government to acquire land for private parties? Private parties buy,sell and assemble land each day in India and around the world,and there is no clear justification for government involvement in transactions between two private parties.

Where projects require large parcels of land,acquisition of land through the market requires the consent of every single landowner. Under the LARR bill,the consent requirement is only 80 per cent of landowners for private projects,and only 70 per cent of landowners for public-private partnerships. Businesses unwilling to pay the market price to landowners or projects that do not have the support of the landowners in the community,will exploit this policy and use the police power of the state to coerce individual landowners. Ironically,it was the Left parties that insisted a unanimous consent requirement to be added to the bill — another suggestion ignored in the all-party consensus.

Finally,there is the question of just compensation. The bill requires compensation to be fair market value,calculated using “one-half of the total number of sale deeds or the agreements to sell recorded in preceding three years”. But,land prices in India are routinely under-reported to avoid high stamp duties and taxes,a problem so rampant that the standing committee has recorded it as a serious concern for evaluating fair compensation. With the undervaluation of land,it is unlikely that landowners will receive compensation close to the real market price. Businesses,attempting to avoid paying full market price,will lobby government officials to undervalue land,further distorting land prices.

The government has positioned the bill as a tool to pave the way for industrialisation and development through the market. However,this bill compromises the most basic foundations for market-enabled growth by trampling on the right to private property and the principles of contract and consent.

For decades after Independence,the Congress government pursued land reform,breaking up large land holdings and redistributing land without just compensation. Then,land reform did not benefit farmers,weakened property rights and destroyed agricultural productivity. Coming full circle,the Congress-led government is now playing for the other side,and using its police power to create large landholdings for private companies. This policy will hurt farmers,further weaken property rights and increase rent-seeking.

The writer is a Bradley visiting fellow at the department of economics,New York University,US

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