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LATEST NEWS UPDATES | To a Land of More Returns by Dipankar Dasgupta

To a Land of More Returns by Dipankar Dasgupta

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published Published on Oct 8, 2009   modified Modified on Oct 8, 2009


Fairness in land acquisition is difficult to achieve

A market’s charm, leaving out cases of distress sale, lies in the fact that it ensures for individuals the right to refuse unacceptable transactions. This observation, though pedestrian, has implications for the controversies surrounding the use of agricultural land for industrial growth in Bengal. Indeed, many — the present author included — have argued in favour of land acquisition through markets, for it avoids coercion, subject to the caveat that the government succeeds in creating a market-friendly atmosphere. The latter condition had not been satisfied by the Vedic Village deals. However, even if idyllic circumstances had prevailed, would the story have reached a happy ending?

As per Section 14M of the West Bengal Land Reforms Act, 1955, no raiyat (that is, a person or an institution holding land for any purpose whatsoever) can possess more than seven standard hectares, or 24.05 acres of non-irrigated land. Excess land will vest in the government, which reserves the power to take possession of such... land by using such force as may be necessary (Section 14SS). The fairness of the act notwithstanding, it engendered many agricultural landowners in the state, mostly owning plots whose sizes are way below the stipulated ceiling.

As opposed to this, Section 14Y specifies that persons intending to establish a tea garden, mill, factory... or Township in a Planning Area as may be permitted... under the West Bengal Town and Country Act, 1979... may, with the previous permission... of the State Government... acquire and hold land in excess of the ceiling area. A potential industrialist in Bengal, therefore, is a single large buyer in the land market, facing a multitude of small sellers.

It is tempting to conclude, therefore, that a land market in the state is at best a euphemism for a happy hunting ground for hoodlums hired by the rich to exploit the poor. The line of thought, though corroborated by grisly events, misses a logical point. In a market dominated by a large number of small-plot holders, land is normally bought sequentially and as more and more of it is transferred to the buyer, the owners of yet to be acquired land begin to raise their reserve prices. This is unavoidable, since the expected development work in the area pushes up land price. Owners tend to hold on to their land till the price rises sufficiently.

The outcome of such behaviour runs counter to one’s intuitive understanding of the virtues of a free market. Those who manage to pocket a higher price by holding out are made better off, and this very knowledge reduces the well-being of the early birds. In other words, some end up happy and others utterly miserable. Economists who believe that markets are the best route for land acquisition, provided the government has a dependable police force at its disposal, may therefore not be entirely correct in their assessment.

The problem could be avoided, of course, if all sellers were to quote their prices simultaneously. This possibility is ruled out by the fact that they form too huge a group to collude and concur. On the other hand, it is obviously irrational for any single farmer to be the first one to sell his land. And the symmetry of the situation implies, therefore, that it is irrational for anyone at all to be the first seller. In other words, logically speaking at least, a free and fair market as envisaged for West Bengal will fail to operate altogether. This does not suggest that the government should employ gangsters. However, any law that is framed in support of market transfers would fail to deliver unless it solves this challenging problem.

Can the difficulty be resolved by the Land Acquisition Act, 1894? What are the salient features of the act?

First, it allows the government to acquire land compulsorily, either for itself or for a company, in pursuit of a public purpose (Part II, Section 4). As far as companies go, Part VII, Section 40 of the act states that the government needs to be satisfied that it will use the land for the construction of buildings for industrial use, or merely that the construction will benefit the public. However, it lists the erection of dwelling houses for workers or related amenities as public purposes too.

Second, Part II, Section 16 empowers the “Collector” (after public notification of the government’s intent) to take possession of the land, which shall... vest absolutely in the Government, free from all encumbrances. Third, while it allows for objections by owners regarding measurement of the area, compensation (calculated on the basis of the prevailing market price at the time of notification plus a 30 per cent solacium in view of the compulsory nature of acquisition) and so on (Part III, Sections 20-23), it states unambiguously that any increase in the value of the land... likely to accrue from the use to which it will be put will not form the basis of the reward (Part III, Section 24). The same section states that any disinclination of the person... to part with the land acquired will be ignored. In other words, the act doesn’t respect the notion of an “unwilling” farmer.

Fourth, Part VIII, Sections 46 and 47 state the nature of penalty for obstructing the acquisition (imprisonment not exceeding one month and/or a fine not exceeding Rs 500) and authorize the “Collector” to appeal to the magistrate or the police commissioner if impeded from taking possession of the demarcated territory. Also, according to the 2004 Supreme Court verdict on the “State of Kerala versus Bhaskaran Pillai” case, land once acquired under the act can be used only for a public purpose or auctioned off at the highest possible price in public interest, since any sum the government acquires in the process would be used for a public cause.

Clearly, there is a great deal of unfairness built into the 1894 act. These call for rectification. In spite of its despotic nature though, it is more functional than the market paradigm, given that it avoids sequential transactions, depending as it does on a government diktat. The market solution, though less autocratic in appearance, is unlikely to be workable, unless the number of agricultural landowners were to be significantly reduced, which, needless to say, is an infeasible proposition.

It is unclear, then, whether the movement that sounded the death knell for the Tata project should be viewed as a resistance to the 1894 act itself or a verdict against the government that used the act, especially so since the act as it stands does not accommodate “unwilling” farmers. Of course, the government doesn’t deserve accolades either, if, as reported, it had precipitated violence in the process of implementing the act.

According to media reports, a section of the members of parliament has opposed the draft amendments to the same Land Acquisition Act. First, they have demanded a buyback provision under which land losers can repurchase their land if not utilized within a stated period. Second, they do not wish the government to play a role in the acquisition. Third, there should not be any forcible acquisition and lastly, all farm lands must be excluded from the ambit of the act. If these reports are true then they amount to a demand that the act be repealed altogether and land transactions carried out through markets alone.

We have already argued, however, that economic laws, as opposed to laws enacted by the parliament, predict that the markets in question will be indistinguishable from stillborn babies. And this means in turn that the lawmakers are caught in a Catch-22 paradox. A law that could have worked is dictatorial, whereas a law that respects freedom will not work.

The Telegraph, 4 October, 2009, http://www.telegraphindia.com/1091008/jsp/opinion/story_11581366.jsp
 

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