Tuesday, 17 March 2015

Tackling the land reforms labyrinth

The issue of land reforms is a complex game involving farmers, corporate and the government. There are also land dealers who are at the periphery, just waiting to walk into the fray, while activists, social rights groups, NGOs make the right sounds to highlight the pros and cons of such ‘reforms’. Finally, there are fringe elements who capitalize on the ‘skewed agreements’ with violence, which degenerates to terrorism as they camouflage their own interests with the cloak of being a modern Robin Hood. It is not surprising that reaching an amicable solution is difficult and the imbroglio continues.

Landowners are probably the most important constituency and the clash of ideology emerges when several small landowners are involved.

There are four issues here:

One relates to valuation. While there are compensation formulae in the form of multiples of 2 or 4 spoken of depending on the location, the issue is how one values land. In India, unfortunately, most transactions have a cash component that can range from 30-60% of the value of the deal. Therefore, going by sale deeds, we can never get the right number. Getting independent valuation done is fraught with risk as it is normally alleged that the land surveyors can be bribed easily by the buyer to undervalue land.

Two, there is an ethical issue that comes in when the price of land goes up after sale. This is but natural when a transaction of such magnitude takes place, which leads to the seller feeling that he has been cheated.

Three, while we talk of the owner and the sale of land, there are landless labourers who work on this land, who get left out of the deal and will be on their own. Are there any safeguards for them?

Four, anyone selling land will need rehabilitation, which means that the person needs to get employed on a regular basis. While the amendments to the Bill do talk of one member getting such employment, practically speaking can a farmer who gives up land be the right person for the buyer, say a corporate, to run a machine?

Anecdotally speaking, the consent clause is hogwash as there are several cases where people have been forced to sign on the dotted line to enable such sales. Therefore, building safeguards becomes necessary. Similarly, the social impact study, though necessary, will always be doubted by both industry and activists depending on the way the result goes.

At a broader level, giving up agricultural land for industrialization is controversial as we are facing an issue of migration away from agriculture.

The land under cultivation is not increasing proportionately to demand, and as the profession of farming carries risk, it has become less attractive over the years. This being the case, it is necessary to ensure that the sale of agricultural land should not be the first option.

The corporates buying land require this resource for expansion of production facilities, and an infrastructure project is contingent on land availability. Paying a fair price would be acceptable to all, though arriving at this number is always going to be dicey. However, while the corporates are willing to pay the price, forcing them to rehabilitate sellers by offering jobs cannot be part of the deal, as there are different skillsets required and all the corporates may not be willing to train the sellers as they would ideally prefer to take in qualified people.

The government is in a peculiar situation as there is an absence of trust from all sides. First, the government is unlikely to take up projects on its own. If it were the Railways, for example, undertaking a project, it would be relatively clear. But when it is a road or a bridge, or the famous industrial corridors, there is an element of distrust which comes in as the parties would be in the private sector. Second, such projects are known to get stalled, delayed and, at times, abandoned.

While putting in a time clause is a solution, resolution becomes important in case the project is not completed. One is not sure of the judicial processes involved and the question is what do we do then? Tracing the sellers is as difficult as tracing the unclaimed pensions and provident fund holders. Valuation becomes another issue as the earlier sellers cannot become buyers. Therefore, there are several grey areas. Can we think of solutions?

The issue requires some unconventional thinking. First, for valuation, we can think of going in for an auction with a reserve price for each piece being set by the current multiples. A single rule cannot hold across all geographies, for clearly the compensation that must be provided varies with the quality of land (farms), location (Mumbai and Delhi command higher prices), access to major towns, availability of infrastructure, etc.

The market price is the best indicator (though not perfect) and an auction can be an improvement over the current system. A price discovery model on a commodity futures exchange can be a way out.

Second, for rehabilitation, the government has to take on the onus by creating a fund which provides an equivalent to all landless labourers displaced. The clause of providing employment to the seller should be on the government and a variant of the NREGA can be used and the cost shared between the states and the Centre.

Third, non-completion of projects should have a penalty of confiscation of land and auctioning the same, with the proceeds going into the rehabilitation fund. Therefore, anyone purchasing land should get all clearances before embarking on the project - environment, power, finance, etc.

Fourth, the social impact study should be outsourced to accredited professional organisations such as consultancy firms and rating agencies, so that an independent evaluation is available. An impact on, say, the environment would mean a higher compensation to the seller. In fact, such studies could be the starting point of fixing variable reserve prices for blocks of land on sale.

With these prerequisites in place, we need not distinguish between private and government purchases and the transactions would be transparent. The only grey area would still be the consent clause, where the number has to be fixed. If all these safeguards are adhered to, there could be a case for even lowering this clause from 80% to 60%, which will have less resistance once the system is considered to be fair.

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