Saturday, August 15, 2015

Land Bill setback could be a blessing in disguise

The Modi government has had to backtrack on the Land Bill. Industry is howling but, on a longer view, this may not be such a bad thing.We need an approach that farmers regard as fair. Perhaps, parliament can now consider a fresh set of options.

It's not enough to say glibly that farmers should not complain as long as they are compensated and that twice the market value in urban areas and four times the market value in rural areas is good enough. The problem very often is that the market value is not easy to determine. Simply looking at recent land sales may not help, as the Economist points out, because these may distress sales made by farmers to other farmers or because the sale price may have been under-reported to dodge stamp duty.

The fact of the matter is that the true value, in acquisition for industrial use, becomes known only after the industries are set up. This means that farmers should have a 'call option' on the property that is sold to industry. The approach taken by AP Chief minister Chandrababu for the construction of a new capital for AP may well be the way to go. Naidu has offered to give back to farmers 30% of the land pool they have together contributed once the city is constructed. This is a way of providing  a call option to sellers.

The problem of dealing with holdouts- people who simply refuse- may still be there. The Economist cites a suggestion made by two economists. Ask for bids for plots close to the ones being acquired and offer these as compensation to those unwilling to sell in the acquired area.

Land acquisition is a hugely emotive issue and more so at a time when farmers are in distress. Forced and unfair acquisition is a factor underlying insurgency in many parts of the country. We need to think of new solutions. So the setback to the government on the Land Bill may well be a blessing in disguise.


Unknown said...

‘Parliament can consider a fresh set of options’ – it is surprising that the draft land bill has not considered/evaluated/discussed approach taken by Naidu.
There is no guarantee of appreciation– and that the option will be indeed valuable (experience with some SEZ show this)
If a ‘land giver’ gets an attractive compensation (that covers opportunity cost for few years plus more – this includes employee guarantee schemes, subsidised canteen, skill development opportunities, cheaper loans etc.) along with an option to ride the upside, his willingness to offer land could increase.

T T Ram Mohan said...

Unknown, Yes, of course. The point is that one-shot compensation is not adequate because of faulty price discovery.


Anonymous said...

Thanks Prof.

It is indeed heartening to see that AP CM Naidu has come up with an innovative approach.
Land aquisition is a bit surprising at the moment because it was seen Govt has already lockedup land.... acquired from SEZ policy and with its own PSUs.
That should have been used first..

as for public infra ... there should have been some way of having ownership of dispossessed on the projects as you have suggested.


Bhupesh said...

For most of the project who are appreciative in nature, Govt Should acquire 4 times the land required, First part used for project, Second part for (partially) funding the project and other two parts should be distributed back to the people from whom land was required, along with monetary compensation. So if development is appreciative in nature each of the stack holder benefits.

I have shared same comments on some of the post on Rediff years back.

surya said...

Here when you say call option you mean Singaporean way of treating land as call option and is the way used by c.b.naidu is any different from that.