All about the government's wrong land war

Why is the government fighting for an illiberal land acquisition law that ignores the advice of its own Economic Survey, asks Nitin Desai

The government’s proposals for amending the United Progressive Alliance’s 2013 Land Acquisition Act have run into a storm of protests.

Presumably the government is pursuing this because it believes that its proposed amendments are essential for reviving investments in infrastructure and industry.

How valid is this belief?

This year’s Economic Survey has a full chapter on what is holding back the revival of investment.

As part of this, after a careful analysis of stalled projects, it concludes that, ‘over-exuberance and a credit bubble as the primary reasons (rather than lack of regulatory clearances) for stalled projects in the private sector.’

In Table 4.3, which lists reasons for project hold-ups, land acquisition does not even figure as a reason for the stalled projects in the private sector but does for the public sector projects.

The other bugbear of the corporate sector, environmental clearances, does not figure in the list, though non-environmental clearances do.

An RTI activist, Venkatesh Nayak, obtained more granular information from the ministry of finance for the 804 stalled projects that were the basis for the Economic Survey chapter.

This detailed information showed that of the 804 projects only 66 were stalled because of land acquisition problems.

Incidentally, these 66 include 10 projects for hotels, resorts, malls and airports.

A close analysis of the list of stalled projects provided by the ministry reinforces the Economic Survey conclusion that projects are stalled mainly because of unfavourable demand conditions and loss of promoter interest.

A bruising political battle in the Parliament or in the streets will make little difference to the investment climate even if the government wins.

Why is the government ignoring the analysis and advice of its own Economic Survey?

The use of the Land Acquisition Act for securing land for public and private projects has become increasingly controversial as the purposes for which the state acquired land moved from public sector projects like, dams, roads and railways, which delivered significant public benefits, to private sector projects and often for purposes of elite consumption like hotels and malls.

The land acquired for SEZs during the UPA regime is a scandalous example of this misuse of the Land Acquisition Act.

A recent study (‘Regimes of Dispossession’ by Michael Levien, Ph.D thesis, University of California, Berkeley, 2013) draws a distinction between pre-1991 land acquisitions and the post-1991 acquisitions.

The acquisitions earlier were mainly for public-sector projects like dams and roads with widespread benefits.

The compensation offered was pathetically low and there was little by way of resettlement assistance.

Yet there were fewer protests because of the perceived public benefit. In the post-liberalisation phase, the state becomes a land broker for the private sector and compulsory acquisition is used to promote private investment often to meet elite demands for high-end housing, commerce and leisure.

In fact the Land Acquisition Act was used to manipulate the acquisition process to create private profits for politicians and their corporate cronies.

Frankly neither the UPA’s 2013 Act nor the amendments proposed by this government recognise that compulsory acquisition will only be tolerated for clearly defined and reasonably obvious public purposes.

Land required for any other purpose will have to be acquired through negotiation or navigate through court battles.

The question the government needs to ask is what it can do to facilitate a negotiated transaction.

This is the way it should be in a capitalist market economy, as compulsory acquisition of land for market-oriented activities is as inconsistent with liberal principles as conscription to provide low-cost labour.

The most important thing the government can do is to improve the reliability of the record of land rights, so that the buyer can transact with the title-holder in full confidence.

Many companies want the government to acquire land for them not so much to save costs as to have the assurance that their right of ownership cannot be challenged by some new claimant.

This type of assurance is available through the Torrens system of recording land rights where if ownership is registered for any land parcel one does not have to go further back to establish whether this ownership was acquired legitimately.

Once a sale is registered and title transferred, any future claimant can only claim compensation from the registering authority and not from the new title-holder.

A full-fledged Torrens system will take decades to establish.

However, a de facto Torrens system can be set up by the local revenue authorities for any large tract of land that a company needs to acquire for its project, with a percentage of the purchase cost being put into a fund to cover potential future claims.

Land acquisition becomes much easier if the landholders share in the increase in land value that will arise because of the project.

One example of this is a land adjustment scheme that covers all land owners whose land values will be affected by the project, and reallots land to them with boundaries redrawn after taking what is required for the project.

The pay-off to the land owners is the automatic permission for conversion of land use. The Outer Ring Road in Ahmedabad used this method -- and one can see the benefit not just in the absence of land acquisition disputes but also in the orderly housing and commercial development along the road.

Large-scale land acquisition that alters livelihood options not just for landowners but also for labourers, traders and others requires that the acquirer accepts an additional responsibility for financing resettlement and rehabilitation of all affected persons.

Moreover, rather than separate negotiations with individual land owners a collective negotiation framework should be provided by a law analogous to the laws for collective bargaining in labour relations.

Where large-scale acquisition is required for extracting some resource the affected community should share in the royalty that would accrue to the state government.

The role of the state in land acquisition for commercial market-oriented private or public projects should be as a facilitator and overseer of transactions involving large-scale purchase to ensure compliance with the law made for this purpose, running a localised Torrens system for providing absolute titles for the acquired land, and promoting the use of land adjustment schemes where feasible.

Compulsory acquisition should be restricted to very precisely defined non-commercial public purposes.