Make land acquisition more transparent

Rediff.com has two terrific interviews on SEZs, one with G K Pillai, Commerce Secretary and the other with Kashiram Rana, BJP MP and convenor of a parliamentary sub-committee on SEZs. Pillai offers a spirited defence of SEZs; Rana suggests the present policy if flawed. Put together, the two interviews enable you to judge what is right about SEZs - and also what is wrong. (Also see my earlier posts, Singur and Nandigram , Reliance and rehabilitation and Reliance clarifies.)

Pillai makes a number of interesting points:

• All the 235 SEZs that have been approved so far will be on land that was acquired before the SEZ Act came into force in February 2006. All states have been acquiring land for years; some of the acquired land has been given to SEZs. So he can't figure out what the fuss is all about.

I am not sure this addresses one of the issues,namely, profiteering by a few businessmen at the expense of the farmer. The government acquires land at an arbitrarily determined price; it sells the land to private developers at a price that is below the market price. The fact that the land given to the SEZs was acquired much earlier does not alter this fact.

• For another 162 SEZs, land remains to be acquired.

How is this acquisition to be done? Pillai says he favours direct bargaining between businessmen and farmers except where small bits of land need to be intergrated with a larger area- in the latter, state intervention cannot be avoided.

Well, the trouble is that a big company always has the upper hand in negotiations with the small farmer or with members of a community of farmers. It can offer a price that appears attractive to the farmer but does not reflect the present or potential value of the land. So, government intervention may still be required but this must be to ensure that the farmer gets a better deal than through direct negotiations with businessmen. At present, the government gives the farmer a worse deal.

Secondly, in order to be fair, compensation must have two elements: a down payment in cash and an upside in the form of a call option on the value of the land a few years down the road.

• In many cases, farmers are being offered a price that is attractive considering their meagre earnings from their small holdings. Besides, owners of land in the surrounding areas benefit from a sharp escalation in land prices down the road. He gives the example of Sriperambadur near Chennai where 750 acres of land were acquired from 1500 farmers at Rs 500,000 per acre. The price has now shot up to Rs 8 million per acre and 15,000 farmers in the vicinity stand to benefit.

This is fine but how does it address the issue of others who are displaced in the rural economy: sharecroppers and landless labourers?

• Acquisition of agricultural land for SEZs, a controversial issue, is okay because, more often than not, what we have is subsistence farming. This cannot take care of 65% of the Indian population that depends on agriculture today. Only job creation in industries spawned by SEZs can.

Well, part of the reason why we have subsistence farming is that not enough has been done to make the land more productive- through better irrigation, diversification into cash crops, etc. You can't have public policy impoverishing farmers and then cite that impoverishment as justification for uprooting the farmer!

As Rana points out, we need a land acquisition policy that gives adequate importance to the farmer's attachment to his land. We also need to proceed cautiously with SEZs- start with a few, watch the results and take it from there.

Above all, we need much greater transparency in land acquisition and a sense among people that transactions are fair. Here is a suggestion: let the government create a Land Acquisition Corporation (LAC). The LAC might function as follows:

• It will acquire land from farmers and sell it to developers.

• In addition to cash payment upfront, farmers will be given shares in the LAC; the LAC, in turn, will have an equity stake in SEZs. This ensures that farmers gain from any prospective appreciation in land value.

• The LAC will have a board with independent directors and all transactions must be approved by the board. The LAC will published an annual report that will document all transactions.

• In due course, the LAC could become a listed company, with its share being traded on the exchanges. This will provide farmers with a ready exit route for their shareholdings.