How impressive is the 2015 Land Acquisition Bill?

One cannot help ask why successive governments would try to push ahead with projects proffering disproportionate benefits to owners of land & labour and taxing away owners of small land parcels, notes Parthasarathi Shome.

"That is the question." And the answer is: little. We need to incorporate economic fundamentals in the legislation on land acquisition as advanced tend to go through this pain methodically. Thus, the embedded economics deserves to be illustrated.

Figure 1 describes the agriculture land market in which government has entered with the objective of acquiring some land on behalf of industry - public or private or in combination. S(L) is the supply curve of land which is a summation of distinct supply curves of individual farmers.

While each farmer is likely to have a different valuation of his land asset and therefore possess a different price-to-supply relation, overall the market sums up to S(L).

Note that S(L) is upward sloping since more land will be offered in the market as a whole only as the price per unit of land increases.

On the other hand, the industrialist has a demand curve D(L) for land needed for his proposed project which reveals that he will tend to demand more land as its per unit price diminishes.

However, he has a maximum per unit price, OF, above which he will not venture to offer a price for the land he requires.

It is important to point this out since governments, in particular some state governments, run to offer land at prices above which they tend to believe industry would not be attracted to invest.

If government did not intervene, then equilibrium in the market would occur at C, the demand-supply intersection, at a price of CL' and the land exchanged would be OL'.

The problem is that this amount of land is insufficient for the project, the requirement being OL.

At this point, AB emerges as the measurement of mismatched prices, the suppliers wanting a price of AL per unit and the buyer offering only to pay BL per unit.

So government intervenes to find ways to acquire OL amount of land, and usually at a per unit price of less than AL.

The issue is where within the range AB, the government fixes the per unit price. Is it to be extracted from the supplier/farmer, the industrialist, or from the government budget.

What is clear is that there is no economic justification in favour of government to subsidise industry by indirectly taxing the farmer.

Government's role should only be facilitation of acquisition where this is not forthcoming due to the underlying intra-farmer variation in the composite S(L) curve.

This the government could usefully achieve through variegated compensation among different farmers, while assuring that there is no transfer at the overall level from farmers to the industrialist.

The crux of the issue is the apprehension that public transfers do not work this way and invariably affect the farmer's or tribal's position adversely.

Government's past economic practice is replete with examples, of which the 2006 Special Economic Zones (SEZ) Act or currently the 2015 Land Acquisition Act are just two. Figure 2 explains this using a box diagram.

The initial points for industry and farmers are corner points A and B respectively.

From here both would like to move, through a tatonnement process, towards the inside of the box where both would be better-off. Thus both would prefer to move as close to preference ranking 4 as possible through acquisition or sale of land.

For example, at D, both would gain, though industry would gain more than farmers. Instead, recent history has convincingly demonstrated that farmers have receded from B, their initial position, indeed appearing to move out of the box, to C, a worse-than-initial position.

Figure 2 is drawn to show further that, instead of being a facilitator, government has bagged a benefit of BD through receipts from leakage or unfulfilled promises of "rehabilitation and resettlement".

The proposed 2015 Act fails to ensure that a movement from B to C will be averted since it has set aside the requirement of 70 per cent consent of communities affected by loss of land or associated livelihood as well as the requirement of a Social Impact Assessment (SIA) "in the public interest" related to projects pertaining to national security and defence; rural infrastructure including electrification; affordable housing and housing for the poor; industrial corridors; and infrastructure projects including ones under private-public partnership where ownership of land is with