Yes, a Land Acquisition Act Can Address Both Justice and Prosperity

The Modi government’s honeymoon ended with the land acquisition ordinance, which was signed by the President on 30th December 2014. The ordinance did not touch the enhanced compensation amounts in the UPA’s 2013 land acquisition Act but it did away with the consent requirement and social impact assessment for private projects in certain sectors.

The government’s effort to enshrine its amendments in law is predictably stuck in the Rajya Sabha, but this is the lesser of its problems. In the roiling controversy over the land bill, the politically damaging anti-farmer tag, and an opposition re-grouped and energised by the issue, the Modi-Shah team probably finds more cause for alarm than in the legislative hurdles it faces. The story of how Indira and Rajiv Gandhi’s landslide victories unraveled is well known.

On matters of economic policy, our political parties are perfect practitioners of situational ethics. Positions and postures depend on whether they are in or out of power. The BJP’s swadeshi instincts regarding FDI were much more pronounced when it warmed the opposition benches. The CPI (M) was dead against the government forcibly acquiring farmers’ land for private industry, except of course in the states that it ruled. The Congress rails today against ‘suit-boot-ki-sarkar’ even though UPA-II marked the heyday of crony capitalism.

One can dismiss all this as hypocrisy and opportunism, but to stop there is to miss a deeper reason why our politics has become such a game of musical chairs. It is a reflection of the sharp conflict between two social objectives we face as a developing nation: collective prosperity and justice for the individual. Instead of seeking policy innovations to soften the trade-off, our politicians find it opportune to cry for justice while out of power but feel the onus to deliver prosperity when put in charge.

Growth as creative destruction

Economic liberalisation of the late ’80s and early ’90s released us from anaemic growth rates but this new prosperity has also been accompanied by rising inequality. In the last decade or so, a broad consensus seems to have emerged that we need to pursue not mere growth but ‘inclusive growth’. But what is inclusive growth really about beyond rhetorical comfort?

There are two very distinct answers to this question. One sense in which growth needs to be inclusive is that it should help break down barriers created by pre-existing inequalities. Even when a growing economy opens up new opportunities, it may bypass economically weaker sections who are caught in a vicious cycle of poverty. Due to acute lack of education, health, assets or credit, poor families are caught in a trap – every generation inherits the handicaps of its parents. Market led growth in itself cannot cure poverty traps; they can only be broken by state intervention and assistance.

A second, less appreciated, need for inclusiveness arises from the fact that growth often generates new inequalities – it tends to produce losers as well as winners. Growth fundamentalists like to think of it as harmonious progress whereby a “rising tide lifts all boats”. This is a naïve viewpoint. Economic growth was more aptly described by Joseph Schumpeter as a process of ‘creative destruction’. Old skills are rendered obsolete and old livelihoods destroyed even as new ones emerge to take their place. In the absence of a well-functioning social safety-net, those who suffer from disappearing opportunities and those who can seize new ones are not the same people.

We do need to replace our inefficient, labour intensive retail trade with big box stores and modern supply chains that reduce spoilage and reap economies of scale. But then what will happen to the kirana store and the vegetable vendor? Mechanisation and irrigation are key to increasing agricultural productivity and releasing manpower for manufacturing and services, but agricultural labourers cannot reinvent themselves overnight as foremen or engineers (their children are a different story). Computerisation increases the productivity of office workers. It also creates the need for fewer of them.

Faced with these difficult choices, politicians flip-flop and ideologues go into denial. There is a tendency on the left to blame all the pains of development on crony capitalism and that old bogeyman, neoliberalism. The right, on the other hand, dismisses all these concerns as paranoid and obstructionist, and pretend as if chanting the mantra of growth will take care of all problems.

We need to acknowledge the difficult truth that in human societies, change – even beneficial change – is always disruptive and unsettling. The burden it imposes on some people could lead to resistance and the stalling of progress. Alternatively, the possibility of broader gains could mean some citizens are asked to be sacrificial lambs. Neither outcome is desirable.

This is the dilemma of development. How do we protect development and its potential victims from each other?

Farmers count, even if farms don’t seem to

There may be many trajectories for development but one feature is common to all. It must involve a major reallocation of productive resources, including labour and land, from agriculture to manufacturing and services. The historical experience of today’s prosperous nations confirms this without exception. In the United States, the share of employment in agriculture fell from 56% in 1850 to 1.5% in 2012. In Britain, which was well into the industrial revolution by the mid nineteenth century, the employment share was already 22% by1840 and has come down to a mere 1% today. Agriculture’s share in GDP shows similar declines.

Common sense also supports this conclusion. If development means schools, hospitals, paved roads and electricity in every village, industrial production has to increase many folds to make it possible. These things do not grow on trees.

Historically, this massive sectoral transformation has often been achieved through coercion and suffering. In Britain during the Industrial Revolution, peasants were kicked off the land by the enclosure movement. In post-revolution Russia, the state sought to squeeze out the last drop of agricultural surplus to feed the needs of heavy industry. China’s economic boom from the time of Deng Xiaoping is aided by the state ownership of all land, which makes it easy to find the space for building factories and cities without the pesky objections of private landowners. These methods are not available to us, given the constraints of both democracy and justice.

Today, the interests of farmers cannot be given short shrift. Two-thirds of the population still lives in villages with strong connections to agriculture. They wield the vote. That is why land acquisition is a livewire around which the government, even one led by a supposedly decisive leader with a historic 282 seat majority in the Parliament, has to tiptoe around carefully.

Improved status vs. public purpose

The debate surrounding land acquisition is so mired in legalism, minutiae and political bickering that we forget to ask a basic question: what should be the guiding principle behind land conversion from agricultural to other uses? Much confusion can be avoided if there is clarity on this question.

Two broad options offer themselves up. The first view, what philosophers call the utilitarian perspective, emphasises the size of the pie for society as a whole. Any measure which furthers the ‘greater common good’ or increases GDP is worth embracing; the interests of particular individuals are secondary. The second view is that change should be permissible only as long as no person touched by it is economically worse off in the process. This is the consensual perspective – change requires the approval of all stakeholders.

If we look at the 2013 Land Acquisition Act, we can see the unresolved tussle between these two views in the background, one emphasising collective prosperity, and the other individual justice. The Act begins by quite explicitly adopting the consensual or justice perspective. The preamble states loftily that the law’s purpose is:

…ensuring that the cumulative outcome of compulsory acquisition should be that affected persons become partners in development leading to an improvement in their post acquisition social and economic status…

No mention is made of the greater common good in this declaration. Yet, as we work our way through the document, utilitarian considerations keep crawling out from under the rock. Consider the 80 per cent consent requirement. It rarely gets mentioned that it only applied to projects done by private companies and not to public sector projects. Farmers’ opinions count if their land is taken for an airport built by GMR but it ceases to matter if the same airport is constructed by the Airports Authority of India, paying the same compensation!

The legislators wanted the private sector to play by consensual rules while the government itself could play by utilitarian ones. The UPA’s law even exempted many public projects like railways and roadways from paying the higher rates of compensation. One farmer friendly aspect of the Modi government’s amendment bill is that it removes this exemption.

Another symptom of confusion is the piety, almost universally accepted and emphasised in the 2013 Act itself, that eminent domain can only be applied for a ‘public purpose’. If it can be guaranteed that all project affected persons experience “an improvement in their post acquisition social and economic status” and if the developers are happy to pay the required compensation, what is wrong with a golf course or luxury resort being built on agricultural land and the government using its powers to facilitate it? Who objects to a win-win proposition?

The truth is that the people who wrote the law did not quite believe their own rhetoric that it will make everyone “partners in development”. There is good reason to support this suspicion. Compensation in the 2013 law is not based on any input from farmers; it employs a mechanical formula that multiplies the earlier compensation amounts (the recorded market price in recent years) by a factor of two (for urban regions) or four (for rural regions). It creates an entirely top down process with compensation determined in Delhi, social impact assessment carried out by outside experts, and only a yes/no vote given to farmers in a fraction of cases.

Even ‘public purpose’ is an Orwellian weasel word if you examine it closely. It is egalitarian in connotation but not in substance. It seems to roughly correspond to the provision of what economists call public goods – roads, railways, airports, defence, police, administration, etc. By that measure, building a shiny, new airport would come under eminent domain but setting up a privately owned textile mill will not. The government can violate property rights to fly the rich but not clothe the poor!

Land price, the elephant in the room

Building any large project that requires lots of land is difficult in India because of high transactions costs. You have to negotiate with thousands of farmers, sift through incomplete land records and settle disputes that may move through courts at a glacial pace. In cases like the Tata factory in Singur which was built on land that had 12,000 owners, it is a practical impossibility! Some form of eminent domain, preferably a weak one, is necessary if we are to move from a primarily peasant economy to a manufacturing and service based economy.

Social impact assessment gives enormous discretionary powers to bureaucrats and experts, with potential for delays and corruption. It is a paternalistic device. The consent requirement, unlike SIA, actually empowers farmers, but only to a degree. It gives them the power to reject compensation set in Delhi but not the ability to determine compensation based on their own needs and opportunities. Both are procedural hurdles that could derail some projects of high social value.

In seeking to eliminate these hurdles, the Modi government has tried to craft a land acquisition policy that puts more weight on prosperity and less on justice. But the UPA also wrestled with the same clashing objectives and failed to make up its mind. Its legislation betrays conflicting tugs and contradictions.

Are prosperity and justice irreconcilable objectives? We have argued elsewhere (for a shorter version, click here) that they need not be so. The glaring flaw in the 2013 law is the arbitrary compensation formula imposed from above, which denies farmers any say in determining the price at which they must hand over their land. The price is instead based on underreported values and historical data, which will not reflect the ground realities that emerge after a major industrial or infrastructural project arrives at the doorstep. Multiplying it by two or four is simply a shot in the dark that has no guarantee of hitting the mark. Determining compensation through a land auction in and around the project site stands a much better chance of satisfying farmers as well as enabling projects that maximize the economic value of land use.

The government hasn’t fixed the UPA’s land law. It has merely tinkered with it. That elephant in the room is not going away anytime soon.

Maitreesh Ghatak teaches at the London School of Economics and Parikshit Ghosh teaches at the Delhi School of Economics.