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Resource centre on India's rural distress
 
 

Ground realities in land acquisition by V Kumaraswamy

The underlying assumption of the proposed Land Acquisition Bill seems that the price paid to farmers is unreasonably low due to dominant power of industrial buyers, requiring government intervention. The draft, however, may neither accelerate the pace of land acquisition for industry nor overcome the psychological barriers of landowners that impede land transfers.

First, the psychological barriers that limit supply. One of the main reasons for the farmers’ (and land dependents’) reluctance to sell their land is the agonising fear of not having an alternative means of livelihood — a fear of the unknown. This fear can only be overcome when the problem is brought to a rational level. It requires development of alternative skills that gives them the confidence of securing their livelihood in the long term. Rehabilitation efforts should have largely focused on this.

But fears and phobias do not bear a linear relationship with price. How effective (even if desirable) the higher compensation proposed by the Bill in overcoming farmers’ fear and inducing them to sell is debatable.

The second psychological barrier to overcome is the phobia of switching from one asset class to another. People in tribal and rural areas are only comfortable with land: it gives regular income, is inflation-proof and guarantees capital appreciation. The only alternative asset class he is comfortable with is gold. The penetration of even primary-level banking is very poor in our rural areas. It would require a much greater degree of financial inclusion to make them comfortable with financial assets as a means of sustaining livelihood. Even after decades of tax incentives, information bombardment and marketing, the percentage of people investing in equities is hardly two per cent. This is less than even a-tenth of the more educated and literate urban population. When urban areas familiar with banking and financial assets have such strong inertia for switching from financial assets into equities, to assume that rural folk will switch from land to financial assets (accept cash compensation, put them in banks to earn interest to sustain livelihood) is highly preposterous.

Next the buyers’ travails. The minimum compensation prescribed (now four times in rural areas) together with the cost of rehabilitation and resettlement (R&R) pushes up the cost to the acquirer from, say, Rs 5 lakh (per acre) to well over Rs 30 lakh (if one assumes there are only two affected families per acre). If the land cost was three per cent of project cost before, the proposed Bill can increase the total project cost by 15 to 20 per cent.

Moreover, the price multiple is benchmarked on the average of the previous three years. Once it is known there is an impending acquisition, prices will spiral upwards even further. This can only become a fertile ground for touts and middlemen.

In return the industry would have hoped to get faster, smoother and secure process. The minimum time to complete the process, which may be upwards of three years, and the multiple doors (forget the single window) to knock on – collector, gram sabha, chief secretary committee, administrator for R&R, oversight members, etc – can sap the energy out of the most enthusiastic entrepreneur. Besides, the R&R requires the creation of several infrastructural facilities — from places of worship to post offices to health centres to burial grounds. If a higher price to be paid for land dilutes competitiveness, the physical impositions can serve a knock-out punch.

In countries like Vietnam, the government does most of these, establishes roads, power and water connectivity and offers land almost off the shelf for 50 years and above at nil annual rentals. The one time upfront cost (starts variously from Rs 10 lakh per acre) is used largely in developing the site infrastructure and resettlement. China does it even better. How can Indian manufacturing compete with such countries?

The Bill’s approach is fundamentally flawed: that of fixing the price arbitrarily high and hoping demand-supply will adjust to fit such prescribed price levels. Achieving social justice in a private economic transaction can be ineffectual. It simply does not work. We have seen it in the agriculture credit. For decades the government has mandated low interest rates for rural/agri sector when the prevailing effective interest rates there is in high-double or triple digits. Asking commercial banks to lend at sub-economic rates has achieved nothing but a pathetic financial inclusion and low banking penetration.

Agriculture and rural areas require industry as much as industry needs land for its growth. Our agriculture engages about 60 per cent of people but contributes to only 13 per cent of GDP. This disparity can only be overcome if people can be released from agriculture and re-engaged in industry. One is not sure the Bill facilitates either.

Economic policy mistakes take several years to discover. We lost 40 years with our socialistic pursuits. We may lose another 40 with this Bill.

The author is CFO of a large paper company.
These views are personal. kumarviru61@yahoo.co.in