The Modi government has abandoned its move to drastically dilute the clauses of the 2013 land acquisition law that has stalled projects across India. Economic analyses suggest that 43% of all stalled projects face land acquisition problems. This may not be the only constraint: such projects are also constrained by lack of profitability and difficulties in getting finance. Nevertheless, land remains a major hurdle.

The Modi government’s failure to push through a new law to hasten acquisitions means that future projects may get delayed by three-five years because of time-consuming procedures mandated by the 2013 law. These include a social impact assessment (SIA), scrutiny by an expert committee, obtaining the consent of 70-80% of affected people, and a detailed relief and rehabilitation programme.

But even as arguments rage in New Delhi on the pros and cons of the 2013 act, Andhra Pradesh chief minister Chandrababu Naidu has found a way round the problem to build a new capital city on 34,000 acres of farmland. His strategy has been to make all farmers stakeholders in the new capital, so that they voluntarily “pool” their land with the city development agency. Once the city is developed in a decade, they will get back almost 30% of their pooled land as ultra-expensive city land. This enables them to see the new city as a road to prosperity, not deprivation (as happened in Singur or POSCO’s mining area in Odisha).

Naidu also offers farmers a monthly payment per acre as high or higher than the going leasing rate for farmland. Farm loans up to Rs 1.5 lakh will be waived. Landless labourers will get a monthly pension of Rs 2,500. Low-cost canteens and skill-development centres have been opened to train farmers in new occupations. The employment guarantee scheme is supposed to provide work every day of the year. All these benefits put together will cost a tiny fraction of the cost of acquisition, so the government also gains hugely.

The new capital is being built in the fertile Krishna-Godavari area where land today costs one to two crore per acre. Naidu has persuaded farmers that, when the city develops, land will be worth Rs 8-9 crore per acre. Prices are far higher in Hyderabad. So, farmers have surrendered their land voluntarily, expecting a windfall when they get back developed land. Till then, they have a reliable cash flow from monthly government payments, plus opportunities for skilling and taking up other work.

This drives home the point that farming is not very attractive. Many farmers want to quit provided they get favourable terms. Pastoral romantics claim that farmers are wedded to agriculture, especially in fertile multi-cropped areas. That romantic view has been punctured spectacularly in the Krishna-Godavari belt, among the most fertile areas in India.

Naidu will give owners of double-cropped land 1,000 sq yards of residential and 200 sq yards of commercial land for every acre of pooled farmland. In addition they will get an annuity (paid in monthly instalments) starting at Rs 30,000 per year and rising by Rs 3,000 annually for 10 years.

Owners of triple-cropped land will get a better deal: 1,000 sq yards of residential land and 450 sq yards of commercial land for every acre pooled. They will also get an annuity starting at Rs 50,000 per year, rising by Rs 5,000 annually for a decade. After 10 years the city will be fully developed, and all farmers will have become city landlords, workers or businessmen.

Around 400 farmers with 700 acres of land have opposed pooling and gone to the courts, claiming they will get a better deal under the 2013 acquisition law. Naidu has offered them free choice between pooling and acquisition, confident that most will ultimately prefer pooling. Against all odds, he has converted a problem into a solution.

He now proposes pooling for a new airport near Vishakhapatnam. Pooling can be used wherever land prices shoot up after development. It may not work for railway lines, that don’t increase local land values much. But it will work for most other projects.

Other states must study Naidu’s example, and adapt pooling for their own use. The key to success is that the scheme is voluntary, and makes farmers stakeholders in development.

This is not just good politics, or a clever way to facilitate economic development. It is also ethical development. When governments deprive people forcibly of property, that is an act of aggrandisement that should be prohibited save in exceptional, unavoidable circumstances. The first priority must be to make all transactions voluntary.

Politicians cannot be expected to put ethics first. But Naidu has proved it possible to combine ethics, good politics and rapid development. Rarely does that happen.