Neither Sonia Gandhi's original Land Acquisition Act, nor the NDA's amendments, is a solution to ensuring a fair price for land. Restoring the fundamental right to property and creating a vibrant land market are more important steps

The Sonia Gandhi-led march against the NDA's amendments to the Land Acquisition Act yesterday (17 March) should be seen as a last-ditch attempt by feudal parties and rural vested interests to preserve the status quo – and thus effectively prevent fast growth and progress.

To be sure, the NDA version of the Land Acquisition Act is hardly what the doctor ordered, but it at least tries to address one part of the problem – delays in acquisition. It should, at best, be seen as a temporary measure to make more land available for industry and infrastructure in the short run to revive growth, even while the country looks for better alternatives.

At some point, the Land Acquisition Act of 2013, including the amendments proposed by the Modi government, simply ought to be scrapped by the centre. The states should be free to draw up their own versions of the Act based on constitutionality and local requirements.

The real problem with the high-sounding Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (LARR) is that it is not what it seems: a law to ensure fair prices for small land-owning farmers. It is really a law to prevent the emergence of a vibrant land market where fair dealing happens not due to the benevolence of the state, but due to the balance of genuine demand and supply. Buyers and sellers can then negotiate the best prices.

LARR not only effectively debunks the possibility of developing a true market for land, but also encourages unfair dealings in land by creating the illusion that the poor will get twice or four times market prices.

What will actually happen is this:

First, feudal landlords and/or their political masters will aggregate land clandestinely from small farmers and those without holding power and then sell it to big corporations. (You don't have to take my word for it. Hear what NC Saxena, former member of Sonia Gandhi's National Advisory Council, had to say on LARR here).

Second, since the buyer will have a vested interest in understating the original “market” price of the land if he has to pay four times the price, corrupt officials in villages and towns will make money by registering false prices. Everyone has a vested interest in understating the true prices at which deals take place since a higher reported price attracts capital gains tax. More black wealth in generated in rural areas because of the massive under-reporting on land prices.

Third, the insertion of social impact assessment (SIA) and compulsory consent clauses in the Land Act increase opportunities for corruption, since delays will cost the buyer, and he will be willing to bribe the corrupt for a favourable SIA report. The need for 70-80 percent consent will shift power to the hands of thuggish local landlords and politicians, since only they can force the poor to agree to sell at prices the buyers may be willing to pay. Everywhere, the corrupt middleman will become more important to land deals than before. Politicians will find more opportunities to blackmail buyers by creating blocks of 20-30 percent of land-owners who will refuse to sell (till their opposition is bought off). They will create more opportunities for corruption and payoffs.

Fourth, the larger purpose – of getting people off the land to earn a living outside farming – will be lost. The Land Acquisition Act will make it tougher for people to sell land and look at other forms of livelihood. Also, growth, jobs and modernisation depend on rapid urbanisation – something which will be retarded by the Land Act. Rapid urbanisation, in fact, helps optimise land use because urban areas pack more people into smaller areas, while the migration of rural labour ensures that more farm land is mechanised and made more productive.

Both rural and urban areas benefit by making land sales easier. Only feudal parties and big land-owners effectively benefit from the land acquisition law, which is why one should interpret the large support for Sonia Gandhi’s march as a confluence of vested interests trying their best to thwart change.

Let’s be clear: the Land Acquisition Act is not intended to ensure fair prices for land-owners; it is intended to create an opaque structure for acquisitions which will destroy whatever land market there is. It will help feudal land-owners, corrupt officials, and unscrupulous elements to corner the bulk of the prices paid for acquired land, leaving both small farmers and industrial buyers short-changed.

The array of parties that participated in Sonia Gandhi’s land march is a mix of two groups: some were in it largely because they see Modi’s BJP as a threat to their own regional bastions (including SP, DMK, INLD, CPM, the two Janata Dals – United and Secular, Trinamool Congress, etc); others came to represent vested interests. The parties which didn’t turn up for her show in Delhi also make for an interesting list: Mayawati’s BSP, J Jayalalithaa’s AIADMK, and Naveen Patnaik’s BJD). The BJP’s allies didn’t show up for obvious reasons.

The reason why there seems to be broad political support for Sonia Gandhi’s move is simple: land is an emotive issue with farmers, and it is easy to frighten them with talk about government snatching it cheaply, for this has been the record of land acquisitions in the past.

What the UPA’s Land Act does is hide the unfairness of past acquisitions – mostly by public sector enterprises under a Left-leaning Congress party – by pretending to offer higher than market prices for land.

That the new law is not a solution to the problem of unfair acquisitions is not obvious to everybody because politicians have confused the issue. Apart from fear-mongering, they have touted the worst features of the Land Act as its best – especially the offer of two times market prices for land near urban areas, and four times in rural areas.

This is primarily intended to fool land-owners, for the “market price” will comprise understated values reported in rural and urban areas. Also, market prices vary with land use – farmland will always be cheaper than land earmarked for industry or infrastructure or urban development. So the underlying “market price” is really a piece of fiction. Four times market price is thus a flawed remedy for the lack of a genuine market for land.



The only real long-term solutions are the following:

#1: Create a formal market for land by cleaning up land titles and creating an online database. The government also has to encourage the reporting of actual transacted prices for land – or disincentivise under-reporting. Land prices are under-reported currently to avoid capital gains taxes, and because land titles are unclear due to disputes, land splintering over generations, and benami ownership facilitated by the rural power structure. LARR will make this worse, not better, because the rewards for under-reporting will now be higher. Quick acquisitions at fair prices will, in fact, remedy bad titles since ownership by the state automatically legalises titles.

#2: Amend the constitution to make the right to property a fundamental right, with only one exception: eminent domain, where the state can, for a narrow list of specified public purposes, acquire land at market-plus rates. Public purpose needs to be clearly defined, and obviously cannot include private purchases of land for commercial purposes.

#3: Scrap the central LARR after, say, two to three years, and encourage states to make their own laws. This idea will have broad political support, though it may not necessarily ensure optimum outcomes. What should be centralized is the land database, and a model LARR should be made available to all states for tweaking according to their local priorities.

#4: In the interim, while the LARR will still be law, it may make sense to announce land use changes before announcing acquisitions; also, most acquisitions should be by the state, and private players should only get land acquired by the state on long leases. This will remove the biggest grouse of land-owners that industry acquired land for a song and then monetised it at a huge premium.

The fight on the Land Act is being wrongly pitched as one between corporate interests and farmers. The real battle is between pro-market and anti-market forces, between capitalist pro-growth and anti-capitalist redistributive policies driven by feudal ideas, between supply-siders who want to unleash the economy’s productive forces to create jobs and demand-siders - those who believe that legislating “rights” creates demand for growth.

Even if Modi loses this battle to Sonia Gandhi, he should focus on the real picture. His ultimate goal should be the abolition of LARR, creating a genuine and vibrant market for land, shifting acquisition powers to states, and making property a fundamental right. Only when property is a fundamental right can land owners expect to truly negotiate a fair price for their property. All else is humbug masquerading as protection of the poor man’s land.