Confronting scarcity

Why much of the anxiety over the new land acquisition law is misplaced.

Written by Yoginder K. Alagh | Published: October 21, 2013 3:37:57 am

The debate on how the new land acquisition act will be implemented has taken a strange turn. The argument no longer centres around how best to develop a transparent and rule-based market so that land is available for industrial,infrastructure and housing purposes. Instead,real-estate mandarins,used to a cushy relationship with state-level politicos,are lamenting the updating of the 19th century British legislation,through which,in the name of eminent domain and public interest,the state acquired land for sundry non-agricultural purposes from hapless farmers.

Industry is not far behind,and corporate groups have been issuing dire warnings that since the state is no longer making land “available” to them,industrial projects and capital expenditure will suffer. In fact,one chamber has even attributed the economy’s slowdown to this new legislation. An eminent financial commentator had maintained in an interview that the new land policy is the main cause behind the collapse in investment. Spurred by this criticism,some state governments and infrastructure bodies have devised policies to fast track land acquisition.

In some cases,hurrying up has adverse consequences. For example,a hapless Gujarat government had to partially give up its acquisition in the Bahucharaji-Mandal region after facing much opposition. I have always argued that land-use planning will be helpful now that we are growing so fast. Shifting the Bahucharaji infrastructure project by a kilometre or so will not impact the project too much,and will save good agricultural land from being acquired.

The new land acquisition act encourages the investor — whether real-estate developer or industrialist or infrastructure creator — to buy land directly,instead of having a mai baap sarkar acquire it for them. This means there will be a market. There will be buyers and sellers. This is reform.

It is another matter that land is now scarce in India. This is so because a fast-growing economy has to contend with a slow-growing agricultural sector. Food inflation is the cause of Ricardian rents,which in turn raise land prices. As the non-agricultural demand for land increases,it also puts pressure on land prices to increase. I don’t like Ricardian rents,but if I ask for policies against them,like a land use plan,I am told this is not a planned economy. A similar dynamic is at work in the cases of other commodities that are needed in the process of growth. It can happen to onions,coal,gold,etc. But we don’t plead for state intervention in those cases. Having decided to be a market economy,we have to take the smooth with the rough,as it were. So why not in the case of land? Particularly when it is the farmers’ turn to benefit from scarcities for the first time since the dawn of Indian history.

There is the Coasean argument of the widow who stops a great social project by refusing to part with her land. For such cases,the law provides that a certain percentage can be acquired by the state. In my opinion,this percentage is too high,not too low. Ten per cent would have been enough,but the ministry could take care of some angularities in the final version of the rules. There is a provision that this clause will be invoked for specific purposes. That should be reason to use it wisely,and let the market work until intervention is absolutely required. The intent of the law is to introduce a market in land,but this will be sidestepped if industrial projects are treated as exceptions,or as beneficiaries of state intervention. That should be avoided.

That leaves the critique that the minima to be given to the farmer,which sets a floor to the bargaining,is too high. This is really scraping the bottom of the barrel in terms of argument. All markets normally provide for avoiding distress sales. In recent months,we have heard of certain transactions being banned in stock and foreign exchange markets for limited periods of time. You can’t have it both ways. If land is scarce and the state has to exercise its powers wisely,then minima are okay. If not,the critics don’t have a case. Sensible rules to operationalise the law will create a market and make us pay the real price of a scarce resource,on the wise use of which our future depends.

The writer is chancellor,Central University of Gujarat

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