'The State's Duty': To Make Land Available for Development

The 'L' word
Vinayak Chatterjee / New Delhi September 21, 2009, 0:29 IST

The introduction of the Land Acquisition Amendment Bill (2009) has the potential to derail economic development.

Exasperated with the public perception of its role, the government now wants to abdicate its key sovereign function of making land available for economic development by dumping it on the private sector. This is wrong. The maintenance of up-to-date land records, the scientific identification of tracts for change-over from agriculture to non-agricultural uses and the smooth transfer of land-assets are the functions of the sovereign. The Land Acquisition (Amendment) Bill, 2009, to be introduced in conjunction with the National Rehabilitation and Resettlement Bill (R&R Bill) throws the baby out with the bathwater.

The introduction of these Bills has had a troubled history, and not all of it is due to Mamata Banerjee! The Standing Committee of Parliament set-up in UPA-I to examine the provisions in detail, had expressed its reservations. Chambers of commerce had sent written communication of their very serious concerns. Nevertheless, it was sought to be enacted in February on the last day of the 14th Lok Sabha. Hurriedly passed in the Lok Sabha, it invited criticism — not just for the haste, but also for doing so in the absence of the opposition National Democratic Alliance. Luckily, there was inadequate time for the Rajya Sabha to clear it, and it thus lapsed as the tenure of the 14th Lok Sabha ended. Notwithstanding all this, UPA-II once again tried introducing the same Bill on August 10, seemingly oblivious to all past objections. As expected, Mamata Banerjee created a furore leading to Sonia Gandhi refereeing the matter and hurriedly withdrawing the Bill, ostensibly, to be dealt with again in the next session of Parliament.

It is not possible to have a perspective on the Land Acquisition Bill without taking stock of the accompanying Rehabilitation and Resettlement Bill. This Bill re-emphasises resettlement as a development issue. In a recent interview, Amartya Sen said, “...on land acquisition ... the sets of people benefitting and paying the price are often quite different.” The Rehabilitation and Resettlement Bill does take a major stride in attempting to address Sen’s concern. The Congress Party thinks that this Bill is heavily aam aadmi but appears to have not quite factored in the possible negative impact on economic development. If it hampers job creation, it cannot be aam aadmi.

Anyway, let us refresh ourselves with the key provisions.

One, the Bill stipulates that land may be acquired by the state only for public purpose. However, the proposed amendment to the Act severely narrows down the definition of ‘public purpose’ to ‘defence purposes’ and ‘infrastructure development’.

Two, other than defence or infrastructure, the Bill proposes that the state can only acquire a maximum of 30 per cent of the land required for an industrial project while the rest has to be purchased directly by the concerned company. A company that wants to set up a large project cannot ask the government to forcibly acquire land, citing ‘eminent domain’. It must first buy 70 per cent of the land required privately, and do this directly from those who own the land. Simply put, the state will step in only to ensure that a 30 per cent minority does not hold back the wishes of the 70 per cent majority.

Three, in the event of resale of acquired land, the entity is required to share 80 per cent of the difference (between the new sale price and the original acquiring price) with the original landowners or their heirs. The implementation of this clause has several practical limitations.

Overall, it is only government that can carry out the task of acquiring land from numerous owners, efficiently and effectively, in a scenario where title-search is frustrating, to say the least. The private sector can perform this function only in reasonably efficient markets. The land acquisition business is a grossly imperfect market. Therefore removing government from playing a proactive role is self-defeating.

(Banerjee’s demands include a buyback provision under which the farmers can repurchase their land if the proposed industry does not use the land within the given time — no role for the government in land acquisition for private industrial projects, no forcible acquisition of land and exclusion of all farm lands. All these four demands are impractical, in the opinion of this columnist.)

Identifying large tracts of land and their subsequent acquisition should be sterilised politically. This means, land is acquired ex-ante, and partially or fully developed before it is allocated to a particular private sector entity and before controversies erupt over government acting at the behest of any particular industrial group. The clause ‘public purpose’ should be redefined to empower the state to acquire land not only for infrastructure or defence purposes but also for the purpose of development of land for potential use by private-sector led industrial, commercial or institutional purposes. This is all the more relevant in an era where Public Private Partnership is being encouraged from bus terminals to sports stadia to hospitals.

The columnist has argued in ‘The lay of the land’, November 17, 2008, that Land Bank Corporations in the public domain would be an appropriate 21st century institutional response to fulfilling the required objectives. As the debate and discussion on the Land Acquisition Bill again hots up, it will be worthwhile considering this solution.

The focus of these State Land Bank Corporations would be to scientifically acquire large tracts of primarily non-cultivable land, develop them as land banks for the future, build appropriate infrastructure linkages and have a transparent mechanism to pass them on to the private sector. The Rehabilitation and Resettlement Bill requirements should be handled by the Land Bank Corporations as per the Rehabilitation and Resettlement Bill Bill, the costs of which could be passed on to the private sector.

Where site-requirements are large (as in the case of a refinery, or a steel plant), or very specific (as in the case of a mine), it is clear that the effort has to go beyond ex-ante land-banking. Industry and government have to work together on this. The arrangement to purchase land should be a tripartite one involving the government, the seller and the buyer. The Land Bank Corporation can be the market-maker. In an article in Hindustan Times on August 15, 2009, Kaushik Basu wrote: “Modern economic theory ... comes out on the side of government intervention … the land acquisition process cannot be left to voluntary transactions. The state must have a role”.

Among the three classical factors of production, government plays a pivotal role in developing and regulating capital and labour markets. It cannot excuse itself from the third factor of production — the land market.

The author is chairman of Feedback Ventures.

He is also the chairman of CII’s National Council on Infrastructure.

Views expressed are personal. vinayak@feedbackventures.com