Will the new Land Acquisition Bill make protests like those in Singur and Bhatta-Parsaul a thing of the past? Will it make land acquisition so expensive and difficult that the pace of industrialisation will suffer? Will it achieve justice? Development? Neither? Experts from academia and industry examine a piece of legislation that is likely to have far reaching consequences for the future of the country.
The last decade has witnessed increasing unrest over land acquisition all over the country. The colonial era Land Acquisition Act of 1894 still serves as the legal basis for eminent domain, a few minor amendments notwithstanding. For the last two years, the UPA II government has been preparing to introduce a new land acquisition bill in parliament. The bill, initially drafted by the National Advisory Council, seems to have evolved quite a bit as it passed through the Cabinet, standing committee, and consultation with opposition parties. While details may yet change, some broad features will probably remain:
- Compensation to landowners must be a multiple of the local market price for land, as determined by the collector from recent sale deeds and circle rates. The multiplication factor has been changed several times and latest documents indicate it will be two times in urban areas and three times in rural areas (including the 100% solatium). Since the current law requires compensation to equal market price, this is a significant increase.
- Landowners as well as livelihood losers – families who earned their living from the land being acquired such as sharecroppers and agricultural labourers – are entitled to a relief and rehabilitation (R&R) package. The package consists of lump sum payments as well as other benefits, such as employment and land-for-land in the case of “urban development” projects. Industries are obligated to pay R&R even if they buy land through the market whenever the total acquisition is above a certain size.
- Tougher procedural requirements will come into effect if the bill becomes law. For example, “social impact assessment” has to be carried out by government committees before acquisition can go ahead. When private industries or PPP (public-private-partnership) projects acquire land above a minimum size, consent of at least 80% of the affected population will be required.
- Taken at face value, the bill attempts to restrict eminent domain to projects with a “public purpose”. It also makes noises about limiting the acquisition of multi-cropped land for reasons of food security but choice of ceilings will probably be left to states. Existing law has similar restrictions but in practice, they are rendered weak by provisions like the “urgency clause”, which have been used quite liberally. Whether the restrictions in the new bill will have more bite is a debatable issue.
A copy of the bill can be downloaded from the Ministry of Rural Development’s website (http://rural.nic.in/sites/downloads/general/LS Version of LARR Bill.pdf). However, this is an older version, which has undergone revisions and amendments.
Our panellists (listed below) examine a piece of legislation that is likely to have far reaching consequences for the future of the country.
Pranab Bardhan is a professor of economics at the University of California at Berkeley, USA. His research is focused on economic development. Bardhan contributes regularly to various Indian newspapers on matters related to public policy, including the problem of land acquisition.
Dilip Mookherjee is a professor of economics at Boston University, USA. He has published theoretical and empirical research on the problems of land markets in India. Mookherjee has conducted extensive field surveys in the Singur region of West Bengal, where Tata’s proposed car factory got stalled due to protests over land acquisition.
Abhirup Sarkar is a professor of economics at the Indian Statistical Institute, Kolkata. His articles on land acquisition, especially in the context of West Bengal, have appeared in outlets such as Economic and Political Weekly and Anandabazar Patrika. Sarkar is also the Vice-Chairman of the West Bengal Industrial Development Corporation (WBIDC), in which capacity he has acquired a policymaker’s perspective on how land scarcity affects industrialisation.
Shrivallabh Goyal is a Senior Vice President at Reliance Industries Ltd. He presents the industry perspective in our e-debate. Goyal has spoken on the issue at many seminars and symposia.
In the last several years, attempts to acquire agricultural land for development projects have triggered protests and violence all over the country. The resistance seems to cut across states, ruling parties and the nature of projects (whether infrastructure or industry, mining or education, private, public or PPP). In your view, what are the endemic flaws in our current law and practice regarding land acquisition?
The 1894 Law is regarded by most people as obsolete, unfair, and hopelessly inadequate. In the last few years we have been going through the travails of shaping a new Act that can address the conflicting demands of the various interests involved. The endemic flaws of the existing law and practice involve matters relating to due process, the extent of state involvement and coercion, adequate compensation and rehabilitation etc.
Shri Vallabh Goyal
In my opinion, the existing Land Acquisition Act 1894 is very sound and has been tried and tested for more than 100 years. At times, the government does not follow the complete procedures of acquisition as laid down in the Act and this causes difficulties. While the Act provides for a well laid down procedure, there is no legislation to address the issues of determination of rehabilitation and resettlement. There are varied policies at the central and state levels but they are toothless. Land owners face dislocation and a loss of regular income, and are not given adequate and timely compensation. It is important that decisions pertaining to compensation, rehabilitation and resettlement are taken in a transparent manner. Moreover, land owners are often unaware of the direct benefits that a project may provide to them. More importantly, the kind of protests that we have seen in the last few years in West Bengal and Noida have largely been politically motivated.
There are five major flaws.
First, compensation to landowners is set at the market value of lands acquired. In many instances, this is inadequate: land is often worth far more to its owner than the market value (which is why they haven’t already sold it).
Second, there is no clear guidance on how market values are to be assessed. At what point of time: before or after the acquisition is announced? Looking at sales of similar plots in the past is too backward-looking, as land values appreciate quickly. Recorded sale prices are well known to be a fraction of the actual price. And most important, official land records are seriously deficient and out-dated. In Singur most of the problems arose on lands which were recorded as single-cropped and non-irrigated (Sali) but had been converted to multi-cropped (Sona) by owners investing in irrigation more recently. They were compensated at Sali rather than Sona rates. Naturally, these owners refused and started protesting.
Third, there are no provisions for compensation for agricultural workers who lose employment. In Singur, this constituted the largest group of adversely affected people. Tenants were compensated only at 25% of market value, as against 60% to 75% compensation on par with prevailing shares in tenancy contracts.
Fourth, compensations are entirely in the form of cash. Many in Singur worried about how these would be eroded by inflation, or would quickly be frittered away leaving their families vulnerable. There are no provisions for creating assets and skills to provide them a secure and steady source of earnings in future.
Finally, there are no safeguards against poor governance. The current eminent domain process is top-down. Government officials can decide on acquisition without consulting affected parties or the local community or seeking their consent. Cash-strapped or corrupt government officials can be tempted to shower bounty on wealthy industrialists and real estate developers while displacing poor and vulnerable populations and letting taxpayers pay the bill for the compensations.
The current law regarding land acquisition is draconic. It has been used for centuries to evict citizens from their land and livelihood in the name of economic development and most of the people thus evicted are poor and disadvantaged. According to the World Commission of Dams (2000), an average Indian dam displaces 31,340 persons and submerges 8,748 hectares of land on an average. Estimates of total persons displaced by dam construction alone varied between 16 million and 40 million over the second half of the last century. Again, the World Commission of Dams has estimated that 40% to 50% of the displaced are disadvantaged tribal communities. If we add to this, displacements due to the building of roads, highways, planned cities, airports, bridges, ports and the like, the number of evicted people seems astronomical.
One can, however, argue that these land acquisitions were undertaken for public purposes, that is for the benefit of a large number of people, and that the evictions were necessary for economic development. We do not deny the necessity of such land acquisition but we think, in most cases, the people who were evicted were ill-compensated and remained outside the process of development. In other words, the people on whose land the public facilities were built got little benefits out of those facilities. Not only the unilateral, government-determined compensations were low, but often the payments were extremely delayed and when they were actually made their real value had shrunk to almost zero. Therefore, the law is draconic not because land is acquired by force, but because it was used for the economic development of the already privileged at the cost of the under-privileged. Pandit Jawaharlal Nehru, while laying the foundation-stone for India’s first major river valley project, the Hirakud Dam in Orissa in 1948, said to the tens of thousands facing the grim prospect of displacement: “If you have to suffer, you should do so in the interest of the country”. The question arises as to why the brunt of the suffering should always fall on the poor?
Later on, the 1894 Land Acquisition act was suitably amended so that it could be used to acquire land for private enterprises as well. This made the Act more flawed.
Should eminent domain be used to acquire land for private industry (as is often the case under current law), or should industrialists be required to buy all the land they need from the market? If you take it at face value, the new bill seems to restrict the practice, but critics have argued that it leaves enough loopholes for it to continue. What is your reading?
While people have been justifiably outraged by the arbitrariness and insensitivity with which the state has often applied the principle of ‘eminent domain’, this does not, in my judgment, negate the case for an appropriate role of the state in acquiring land, even on behalf of private industry. The state has to get involved for various reasons:
- Particularly in the densely populated parts of the country, the number of tiny land owners is so large that the transaction costs in negotiation can be simply prohibitive from the point of view of the private companies (This is in addition to the ‘hold-up problem’ by some recalcitrant seller that is usually given as rationale for ‘eminent domain’ in most countries). Left to the market, the companies will turn to brokers and other middlemen, who in the common Indian experience of restrictive or sharp practices, may often exploit the small land-seller. Worse cases of strong-arm tactics by the land mafia are not unknown, and the state may have to actively intervene in preventing this.
- Even if the land-seller wants to negotiate directly, land records are often defective and contentious, and in the absence of title insurance, the land-buyers will feel more assured in the transaction if the state acquires it for them.
- In direct negotiations between the land buyers and sellers, without involvement of any third party, the tiny land-seller may be at a considerable disadvantage in bargaining with a large corporate buyer.
- The state has to be in any case involved in providing the minimum infrastructure (roads, power and water supply etc.) for the private company, particularly if there is competition with other states in the matter of adequate supporting infrastructure.
- The state may also have to be involved in organising training and skill formation programmes for the people giving up their land - just promising them jobs, irrespective of qualifications, in the new projects, as is sometimes proposed, is unfair to the employers and inefficient for the economy.
- The state (including the local government at the village level) has to play a major role to ensure that the other livelihood-losers from the land sale (tenants, landless workers, rights holders under the Forest Rights Act etc.) are provided for.
Of course, state officials, politicians and bureaucrats, are often corrupt, and may sometimes have lost trust of the people to do the right thing on a sensitive issue like land, and land acquisition becomes a matter of political football among rival political parties, as it has in West Bengal. The whole matter of land transfer, administering of compensation and resettlement may have to be handed over to an independent quasi-judicial authority or regulatory commission, sufficiently insulated from the day-to-day political process but subject to periodic legislative review. The commission should regularly hold local hearings where all parties can present their cases and grievances. At the same time regulatory capture by real estate interests has to be guarded against.
Shri Vallabh Goyal
Historically, the most common uses of property taken by eminent domain are for public facilities, highways, and railroads. Over the last decade, the government has been involving the private sector to participate in the creation of infrastructure to deliver the public purpose. Hence, its use is beginning to be broadened to projects involving not just 'public use' but also 'public benefit'. To achieve a 100% land purchase by a private company and in particular of large projects is extremely difficult as the buyer is subject to blackmail/ refusal to part with land etc. Given that infrastructure development is an essential component of the country's growth and that the average land holdings are small, the principle of eminent domain is essential to be exercised.
The recent amendments to section 2 in the current bill have completely altered the definition of public purpose and has categorised the ability to acquire land for projects. It mentions the category of the projects for which the acquisition of land for public private partnerships and private companies will be undertaken. It provides an ambiguous, narrow window for the government to acquire land for private companies.
There are many good reasons for the government to regulate and mediate land acquisition for private industry.
High growth and creation of new jobs in services and industry will inevitably be based on private investment in the foreseeable future. Since industries often require a lot of land, they would have to negotiate with thousands of small landowners. A purely voluntary process gives scope for a small number of landowners to hold up the whole process by asking for much more than their land is truly worth to them.
In a pure market-based process, the ones that usually benefit the most are real estate speculators or large industrial interests. They buy lands cheap on the basis of inside information of future developments. A vast majority of small owners are unable to match the bargaining strength of land developers or industrialists. Suitable regulations are necessary to ensure a fair price for all owners, and restrict the scope for a few to hold everyone else to ransom.
The LARR bill does a good job in bringing land acquisition for private industry within its ambit, requiring a super-majority of owners to agree, and imposing R&R provisions for large acquisitions.
Eminent domain should not be used to acquire land for private industry. The proposed bill can allow this to happen in two different ways: (i) through public-private partnerships and (ii) by guaranteeing that if 80% of the required land is bought by the private entrepreneur directly from the market, the remaining 20% would be acquired by the government using public domain. I have objections against both. As for PPP, government involvement does not per se make a project public purpose. Again, if we have a moral or economic objection against forceful acquisition of the first 20% land, the objections must hold equally for the last 20%. Again the 20% number is totally arbitrary; one wonders where it came from.
But we do need land for private industries. The government can act as a facilitator or catalyst for private purchase of land without forcing anyone to sell his land. It can provide information to the potential buyers, develop a land bank by buying land from willing sellers, arrange auctions through which land may be sold for private industries and in general help private entrepreneurs buy land. The government should charge a fee for providing these services to the private industries because all these activities would involve deployment of substantial resources on the part of the government.
Much of the human displacement and suffering in post-independence India can be attributed to large public projects like dams, railways, highways, etc. The new bill exempts many such projects from its provisions, while subjecting private industry to strict consent requirements and R&R obligations, even when it buys land from the market. Do you think the state is justified in imposing conditions on the private sector that it itself refuses to meet?
The consent and R&R requirements should be there for public infrastructure projects, but maybe in a less stringent form than in the case of land for private companies. In spite of all the displacements in the past, lack of adequate public infrastructure remains the major constraint for Indian economic development (including for private investment).
Shri Vallabh Goyal
The government is definitely following separate polices for private industry as compared to its own agencies even though both have to meet the requirements of public purpose/ public interest/ public benefit. It is wrong for the new bill to exempt the 13 central Acts from its provisions. For example, the central Acts especially the Telegraph Act and Electricity Act are creating a lot of problems for farmers. The electricity transmission and distribution companies get away with giving only a paltry amount equivalent to the crop damage, while the farmer loses half an acre of cultivable land due to restrictions on ROW.
I don’t see any justification for imposing requirements for private sector acquisition that are not imposed for public projects, except in the case of national security or emergencies.
I think that for public projects like dams, railways etc. the government should pay compensation and offer R&R at par with what it expects the private sector to pay and offer. Here it is the sacrifice of the land-loser that is to be considered, not the nature of the benefit the project might offer, because in most cases the benefit does not accrue to the land-loser. As far as the sacrifice of the land-loser is concerned, it is the same for a public project as for a private one.
Some people have raised concerns that the rapid conversion of agricultural land will have an adverse impact on agricultural output and food security. Do you think the new bill addresses this concern adequately?
One should not exaggerate the food security issue, important though as it is. In most states the amount of agricultural land that will be required for acquisition for infrastructure or industrial needs is a very small fraction. Also, not all states have comparative advantage in agriculture. Within a country, if the existing cumbersome restrictions on agricultural trade and distribution are relaxed, there should be considerable scope for getting food grains from other states. In any case, the new Bill proposes acquiring multi-crop land only as “a last resort”.
Shri Vallabh Goyal
This point has been mentioned in the proposed bill and the states have been asked to take cognisance of the issues associated with conversion of agricultural land. I believe that the said provision is best left to the states to decide as to which land is suitable for conversion and which is not, in accordance with local conditions. What we need is increasing the productivity of our agriculture rather than thinking of reduction in agriculture area to be acquired. For example, yield of rice in China is 6.5 tons per hectare while in India it is 2.3 tons per hectare, which is below the global average of 4.3 tons per hectare.
If lands are valued correctly and compensations are based on those, there is no need to have any special provisions for protection of agricultural land or maintenance of food security. Highly fertile lands will be valued more and so would be less likely to be acquired. If food production declines, food prices will rise and this will automatically raise land prices and required compensations. There are too many heavy-handed regulations in the law in this respect which will increase the scope for discretion of government officials. The purpose ought to be to ensure that those acquiring lands pay the true social cost of doing so.
I don’t think food security is a problem that should bother us here. At the macro level, industrialisation requires a small portion of the total land that is being cultivated now. The loss can be easily made up by productivity improvement. This is not to say that we do not have a problem of food security. We have to increase our food production by all means, but there is very little scope for doing this by bringing in more land into cultivation. Productivity, which is still quite low, has to be increased and that seems to be the only solution to the problem.
Current law provides some protection to land owners, but it leaves livelihood losers (such as tenants, sharecroppers and day labourers who work on the land) to fend for themselves. The R&R provisions of the new bill have been extended to such stakeholders at least on paper, but do you think it has done enough to both identify and compensate this group?
I think the livelihood losers should be given a form of unemployment benefits for a specified period (or jobs, if they are qualified). Identifying the genuine cases of the eligible people is a tricky task in which the panchayats and gram sabha should be mobilised.
Shri Vallabh Goyal
As mentioned earlier, under the current system, only policies exist at the centre and in some states with respect to R&R provisions. I believe that the R&R provisions in the current bill adequately protect the landless people by providing them a choice for provision of annuity, employment or a one-time compensation. However, I would like to suggest that the full range of options only be offered to land owners. Affected families who are not land owners but directly and fully dependent on the land to be acquired should be offered employment or one-time compensation. Families that are affected on a secondary/ tertiary basis should be provided skills training such that their employability is enhanced.
There are a number of important problems that are likely to arise in enforcing these protections. I am not sure how concerned officials overseeing the process will be able to identify exactly who was a tenant on the acquired lands, or who worked on it recently as a labourer, or what prevailing tenancy shares have been in the local area. There ought to be more provisions empowering and involving local panchayats in this process. The Bill is stronger in its R&R component for SC and ST populations.
It is difficult to protect the interest of all livelihood losers. There are so many people directly or indirectly depending on land for their livelihood. But where does one draw the line?
In recent times, environmental regulation and mining activity have often cut off tribals’ access to their traditional forest habitat. By most accounts, implementation of the Forest Rights Act of 2006 remains poor. How can the land acquisition bill protect the interest of tribals? To be entitled to compensation and rehabilitation, one has to have secure property rights in the first place.
In the displacements of land acquisition in post-Independence India, tribal people have been the largest losers, and so one has to be especially cautious. This history is also littered with reneged promises of resettlement and repair of environmental damages. The new Bill is on the right track when it proposes that the compensation and rehabilitation of displaced people should precede the launching of any project (and the tribal people preferably resettled in the same Scheduled Area). There should also be some mechanism for punishing those officials (and companies they collude with) who systematically break promises. At the same time, the fear of displacing tribal people should not block all development projects some of which will, at least partially, benefit the same people with jobs and infrastructure. In the case of private mineral and other companies, some of their shares should be vested in a community fund (or the local panchayat treasury).
Shri Vallabh Goyal
There have been amendments in the current bill suggesting inclusion of schedule tribes and their rights within the definition of "affected families" and "person interested", so that they are covered under the provisions for compensation and rehabilitation. We believe on paper their interest is well protected, however we need to see how these provisions are implemented at the ground level.
That is indeed true. This is part of the same underlying problem of improper land records throughout most of India. There needs to be a proper settlement of rights of tribal communities over common lands and resources in the first place that are thereafter protected from acquisition.
The problems of the tribal communities would have to be handled separately. These are communities which are not even included in the lowest stratum of the social hierarchy, like for example the scheduled classes, but simply lie outside the so called Indian society. We shall, therefore, need a separate piece of legislation for acquiring land in tribal areas.
The formula for compensating landowners has been set at some multiple of the market price. In the latest communication from the Ministry of Rural Development, we learn that compensation must be double in urban areas (if you count the 100% solatium) and up to 3 times in rural areas (again, counting the solatium). Do you think this will do justice to farmers, and at the same time, keep the price of acquisition sensible?
Compensation is probably the most contentious issue. The fixing of the compensation multiplier has to keep several things in mind:
- It has to be large enough for voluntary sales but low enough for keeping the new project viable. As is widely known, in the last few years land prices in urban and semi-urban India have gone up excessively in many areas (often in speculative spirals), so the multiplier may have to be re-adjusted accordingly.
- The new Bill proposes to give flexibility to the state governments, but too much flexibility may lead to race-to-the-bottom competition between states to attract industrialists.
- Instead of pre-fixed multipliers, the idea of land auctions at the panchayat level seems attractive particularly from the point of view of reflecting heterogeneity of land values and offers. However, given the low state capacity and high official corruptibility at that level, chances of capture of the process by brokers and middlemen, pre-emptive land-buying by them, and bid rigging are large. Maybe, some area-wise land value indices for different agro-climatic zones in the country (keeping in mind broad variations in soil quality and water access) should be pre-announced (like those used in many cities in India for municipal property assessment, though agricultural land may be more heterogeneous than urban property), and any bidding should be within those parameters.
Even if we all agree on compensation multipliers, this will still keep another source of farmer dissatisfaction unresolved. I’d call this ex post dissatisfaction, after the sales transaction, when the seller sees unanticipated price rise of land (particularly, if he had sold it to the middlemen and brokers who become active in buying land from farmers long before the proposal for a new factory or a road is mooted), which the former have missed out and which is being enjoyed by their fellow villagers who did not have to sell their land. Recent agitations in UP and Haryana on this issue turned to violence.
One solution is for the state to offer sellers a compensation package in two parts:
- A lumpsum amount related to the current market value of the agricultural land (adjusted by the multiplier discussed above); and,
- An annuity (a monthly pension, as it were, for the farmer’s retirement) from a trust fund where some shares of the new company are vested.
This fund will collect shares from all companies in the business of buying land all over the state, so that risks are pooled on a large scale without the fund brought down by any particular project failure. The fund should be independently and professionally managed (like pension funds in many countries). From the point of view of financial security, a stream of annuity payments may be much better for poor farmers than one-off cash payments. Of course, since it’ll be something new, extensive information campaigns explaining the nature of annuity to the people should be arranged. In projects where the land is acquired mainly for public infrastructure, and no such company shares are relevant, a betterment levy on nearby land may be contributed to the trust fund. In the case of mining projects the mining rights should be auctioned in a transparently competitive bidding process, and the proceeds are to be deposited in this trust fund for annuity payments to the dispossessed.
Shri Vallabh Goyal
The formula for compensation proposed will compensate more than the required, so the land owners should be happy on the monetary front. However what is worrisome is that the terms ‘Rural’ and ‘Urban’ have not been defined in the Act anywhere and this will cause lot of litigation and heart burn, since the amount of compensation is dependent on the terms ‘Rural’ and ‘Urban’. I suggest that the Act lets the state governments define these terms.
The procedure for valuing land and settling compensation continues to be deeply flawed in the Bill. Setting compensation at four or two times the assessed market value using existing land records is hoping that two errors will somehow offset one another to produce a correct answer. It will often do the precise opposite, and magnify the errors. In Singur, the West Bengal government got the average market value of land right. The problem was not that the average level of compensation was too low. It was a failure to identify the characteristics of each acquired plot correctly - for one-third of the land (the owners of Sona land), there was under-compensation, while many others were correspondingly over-compensated. An additional 50% for the Sona owners would have avoided most of the fracas. The LARR Bill would instead set compensations at four times the market value for all the owners, which would clearly be excessive. Setting such a steep compensation rate will render land acquisition far too expensive, much higher than social costs, and unnecessarily choke off a lot of future growth in the country.
What is needed instead is a more market-based approach to deciding compensations. Local panchayats can ask property owners to name the price at which they would be prepared to give up their respective plots, add the costs of protecting displaced workers, tenants and tribal communities, and prepare a budget for the total compensation required for land to be acquired in that community. All owners could be compensated at the price at which exactly 70% of the local owners would be willing to sell. Such a process would be bottom-up, voluntary for the majority of owners, and managed by local panchayats. Once the government or some private industrialist announces their interest in acquiring land in a given area, different panchayats could prepare bids based on the process described above.
A problem with the Bill is that it retains too much discretionary power with state government officials, and this creates a number of potential governance problems. It would be better for states to set up a quasi-judicial regulatory body at arms’ length that oversees and enforces provisions of the Bill, in collaboration with local panchayats. State and Central governments need only be referees in the game.
I think to arrive at a proper compensation formula is extremely tricky. The 100% or 200% formula seems arbitrary. In my opinion, compensation should be based on the "future expected price" of land after the project is over and not on the average price at which land was transacted in the neighbourhood in the recent past. The future price may be completely out of line with past prices once the project (say a road, highway or a bridge) is complete. The increase in the price could be much higher than 100% or 200%. It is only through the market expectation that the future price of land can be evaluated. So I would suggest that the government should first make a public announcement of the project and then observe how the market price of land is increasing in the neighbourhood on account of the announcement. The base price for a compensation formula should accordingly be based on the future expected price as reflected by the market price today.