Reality check on land

Reality check on land

Law on land acquisition will reduce distortions in the use of a scarce resource

Law on land acquisition will reduce distortions in the use of a scarce resource

Land records are in a mess in most states. While satellite imagery can yield an authentic image of the plots,it cannot determine ownership.

The land acquisition issue is nearing the end of its first phase. With the government accepting key BJP demands,a consensus has been evolved and the Land Acquisition,Rehabilitation and Resettlement Bill is likely to go through Parliament,albeit with the usual hiccups. The real problems start now. The bill provides for the consent of 80 per cent of the landowners affected in land acquisition for private projects with a public purpose — a figure that will continue to receive flak. The state’s eminent domain power is limited to 20 per cent. It will be difficult to exempt land-intensive public sector projects from the law. There cannot be one law for other projects and different laws for highways,power lines and mines. The idea of eminent domain is only really justifiable for a few cases and in the name of security — perhaps just atomic energy projects make the cut. The flurry of land acquisition by state governments for their pet projects will also be stalled.

The more vociferous opposition will come from interest groups used to getting land for private or corporate purposes by using the unlimited eminent domain principle in the existing Land Acquisition Act,more than a century old. All kinds of doomsday scenarios are being predicted,for instance,that the nascent economic recovery will be jeopardised. To be fair,these groups have accepted that the price of land will go up. For one,market logic has to be applied. Land in India is scarce and scarcity prices have to be paid. Interest groups that champion economic reform and the need for prices to find their own level will find it hard to argue that land prices should not be determined by scarcity values. Ricardian rents are a part of the working of markets and maybe now it is the farmers’ turn to profit from it.


The overarching legislation was essential to build a land market. The structure is there,but the market is not. It is not for the want of buyers and sellers. But it is hard to determine who the seller is. Land records are in a mess in most states. While satellite imagery can yield an authentic image of the plots,it cannot determine ownership or give information about whose name there is in the satbara. That is the real problem,which no one has acknowledged.

In the 1970s,it was noted that there was a pervasive structure of “reverse tenancy”. This is a phenomenon in which small farmers lease their land to middle or large farmers and work as landless labourers. It is now a widespread phenomenon. Census results and NSSO data affirm that casualisation of the labour force is the dominant trend in the rural labour market. The person who tills the land is usually not the owner. But there is no record of tenancy. In some parts of India,the tenant is a small farmer and the person who owns it lives in the city. In spite of improvements,the problem of unrecorded tenancy continues and in the richer states,where land for non-agricultural use is in greater demand,it is even worse .

In a way,there is a market even now. The country teems with estate agents. At best,they help the buyer navigate the maze of transactions. At worst,they are strongmen who ensure possession for the buyer. They handle the questionable side of transactions so that the buyer in the formal sector can keep his hands clean.

In a typical village in western India or on the Deccan Plateau,about a fifth of the influential middle or large farmers may till more than two-thirds of the agricultural land and anywhere up to half of the land is leased. In the poorer regions of India,a large section of marginal farmers would have leased a fifth to a third of the land. The first thing to do is to legalise all this. We must create the foundations of a legal market. There is enough experience to show that it can be done. Then the farmer,including the one who has lease status,will have rights that can be bought and sold.

In spite of the hurdles,the new legislation is an important step in the right direction. It will raise land prices. But that will show the real cost of investment at the margin is higher than what an estatist policy reflects. The country has to get used to its real scarcities,whether it is land,water or energy. Subsidies for the poorest have to be paid for. We cannot manage with stop-gap measures like enforced land purchase or,for that matter,pooled fuel prices,which distort the use of our scarcest resources.

The writer is chancellor,Central University of Gujarat