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A lot of controversy has been generated in the last few months by the NDA government's move to amend the 2013 Land Acquisition act. The opposition parties who vehemently oppose any change say that the proposed amendments are patently anti farmer. They go on to charge that the new law would favour 'corporates and businessmen'. On the other hand, the government and its supporters maintain that there is nothing inherently 'anti-farmer' in the proposed changes. They further point out that many state governments including those ruled by the opposition have complained of difficulties in acquiring land for needed infrastructure purposes.
Where does the truth lie, and importantly from an economic point of view, why is this issue so vital for economic growth?
Colonial Law
The Land Acquisition Act of 1894 was the culmination of several similar laws that the colonial British Indian government enacted from time to time. The law was intended to serve British commercial purposes in the colonial times. Railways, then under private ownership, used this law to acquire land to build the railway lines that crisscross the subcontinent today. After Independence, this law along with many other colonial enactments was adopted as the law of the land under the then new Constitution. It is useful to point out at this stage that under the 1950 Constitution, Right to Property was a Fundamental Right. Hence citizens could not be forced to part with their land except on the basis of this and other specific laws.
The New Law
It was only in 2007 that the then UPA government sought to bring amendments to the old act. Later, in their second term, they brought an all new Act in 2013. One of the key catalysts for bringing in the new Act in 2013 was the hue and cry generated by the infamous Singur case in West Bengal, where Tata Motors had to abandon its project and abruptly shift its factory to Sanand in Gujarat, due to intense pressure from farmers who alleged that their land had been forcibly taken away from them to make way for this project.
The salient features of the 2013 Act, which sought to address issues that the Singur case threw up, were as follows:
First was the provision for a Social Impact Assessment (SIA). The SIA would study whether the proposed project served a public purpose and whether only the minimum area required for the project was being acquired and the general social impact of the acquisition.
The Act also provided for rehabilitation and resettlement of uprooted people in the lands acquired; the land owners as well as those dependent on it. Compensation was fixed at up to four times the market rate in rural areas and at up to two times the rate in urban areas.
The Act mandated that the consent of 70% of land owners was to be obtained for public-private partnership projects, while the consent of 80% of land owners was necessary for private projects. Consent was not required for government projects. The 2013 Act prohibited the acquisition of irrigated multi-cropped land, except in certain cases where the limit may be specified by the government. Further, if the land was not used for a period of five years it had to be returned to the owners or a land bank.
Issues posed by the new law
While on paper all this looks good, the devil as they say is in the details. Critics point out that these procedures can cause inordinate delays and create avenues for massive corruption. This is because there may be disagreements on who exactly the tenants are and other non-owners who have to be compensated; particularly in a country where it is difficult to know who the legal owners are!
Getting the consent of such a large percentage would be an involved and protracted affair. After this the compensation would have to be decided. Then the resettlement and rehabilitation process would have to be worked out. All this would have to be done in the full glare of press publicity. Many experts say that such procedures could draw out acquisition to even ten years; in which case the rationale for the project might well have evaporated by the time the land is acquired.
On compensation too many problems can arise. The conventional way to calculate compensation has been to take the values of recent transactions registered with the relevant authorities. However this is inadequate as the prices of land vary, even for adjacent plots, as some plots have perceived specific advantages.
The other important point is that when land use is changed from agriculture to commercial/industrial use, owners would naturally expect some of that future benefit too as compensation. There are no clear ideas on how this can be made possible. Further, many experts feel that the limit of five years is not a long enough period for long gestation projects. Thus land may have to be returned even as the project is getting off the ground.
Several large business houses have gone on record to state that it is virtually impossible for them to acquire large tracts of land under the 2013 Act, to enable them to set up greenfield projects. Business leaders have been vocal about plans to set up manufacturing bases overseas and export to India, rather than attempt to acquire land here and set up factories in India. This obviously has significant negative implications on employment, on GDP, on balance of payments - and perhaps equally importantly, on business sentiment.
The Amendments
The amendments now proposed exempts the following categories from the consent clause, the Social Impact Assessment clause, and the limits that apply to acquisition of multi-crop land. The five categories are: defence, rural infrastructure, affordable housing, industrial corridors (set up by the government/government undertakings, up to 1 km on either side of the road/railway), and infrastructure projects. The NDA Government sees its land acquisition reforms as central to "Ease of Doing Business" and "Make in India" - two of its flagship initiatives.
In the 2013 Act, land could be acquired only for 'private companies'. The amendment seeks to change this term to 'private entities'. Thus proprietorships, partnerships and non-profit organisations too will be eligible. In passing the amendments, the Lok Sabha made the following changes. (i) Employment must be provided to 'one member of an affected family of farm labour' as part of rehabilitation and resettlement, in addition to the current provision which specifies that one member of an affected family must be provided employment; (ii) hearings of the Land Acquisition, Rehabilitation and Resettlement Authority to address grievances related to compensation be held in the district where land is being acquired; and (iii) a survey of wasteland must be conducted and records of these lands must be maintained.
Further the land may be returned to the land owner by the higher of either five years or any time period specified at the time of acquisition.
Conclusion
While the new amendments are not significantly different from the earlier law, it does make land acquisition easier; and to that extent the process would be less prone to delays and corruption. Doing away with the consent clause for 5 specific cases is however seen by Opposition parties as anti-farmer, as fears are being expressed that land will be forcibly acquired whether the farmers agree or not.
What is clear is that land is indeed required for infrastructure purposes. Even in countries like the USA, which cherish individual freedom and where property is a fundamental right, land required for roads, schools, atomic power projects, defence purposes and industrial corridors are all 'acquired'.
Keeping aside the politics of the situation, at heart of this controversy is a fear that farmers will not be able to judiciously invest the sale proceeds to ensure steady income for their families that will compensate loss of agricultural income. A proviso that mandates one job per affected family is meant to address this concern - but clearly farmer groups and NGOs don't think this is enough. Several NGOs have mooted the idea of leasing out the land to businesses rather than selling out: this would substitute agricultural income with rental income for the farmers. Businesses are understandably not enthused as no business would like to set up a huge factory on leased land, only to find years later that the lessors now want their land back!
Lack of financial literacy seems to be coming in the way of enabling an equitable land acquisition law - which this country badly needs in order to ramp up infrastructure development and manufacturing activity. The Government may want to think of a solution where farmers are asked to invest perhaps half the compensation amount into notified investment vehicles that are designed to provide regular income.
The country needs a fair and equitable land acquisition law - there can be no questions on that. The 2013 Act is seen by businesses as impractical. The proposed reform is seen by farmers as dangerous. What is required is to keep politics out of this and get the two stakeholders together - representatives of farmers and businesses - to hammer out what they believe is fair and equitable to both.
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