Why Chidambaram is mostly wrong in opposing Land Acquisition ordinance

The tragedy of Palaniappan Chidambaram is that he was the right reformer in the wrong party. His instincts were towards more and more liberalisation, but his party – the Sonia Gandhi-led Congress – believes in a welfarist world where the only job of government is to keep pushing money into rural hands.

By the time Chidambaram got the finance minister’s job again in August 2012, he was out of luck. Elections were less than two years away, and, far from learning the lessons of excess welfarism, the Congress decided to push through some of the worst growth-curbing laws through parliament in order to win votes. So Chidambaram was forced to back the Land Acquisition, Rehabilitation and Resettlement Act 2013 (LARR).

Trouble is, even though there is little chance of him ever coming back to government, he still thinks LARR was a great idea. This is why he has rubbished the NDA’s Land Acquisition Ordinance of 31 December 2014, which seeks to correct the Act’s flaws, in a recent article in The Indian Express.

Chidambaram’s main arguments against the changes – apart from the usual one that it ought not to have been done through an ordinance – are the following: the “soul” of LARR has been killed by allowing four major exemptions from the Social Impact Assessment (SIA), which cover practically every kind of acquisition need; the 70-80 percent consent clause has also been diluted; private hospitals will also qualify for exemptions; and acquired land left undeveloped for more than five years (or where compensation is not paid) would not lapse anymore (under the ordinance).

 Why Chidambaram is mostly wrong in opposing Land Acquisition ordinance

AFP

One does not have to be a Congress partisan to accept that the ordinance to correct the 2013 LARR may have flaws. These flaws can, and should, be rectified when it comes up for passing in parliament, or if it is sent for scrutiny by a joint select committee.

One can also agree with Chidambaram when he says that the British era law that LARR replaced was tilted too heavily against the land-owner and others dependent on the land for work and livelihood. But the real problem with the law is not its intent, but content. Chidambaram himself agrees that the law had serious drafting errors, and also was too draconian in trying to put the onus of wrong implementation of the law on the head of departments implementing it.

But even if you concede that SIA and the consent clause may have been the “soul” of LARR, were they were the only ways to address the issue of land expropriation?

Here are some reasons why LARR needed to be loosened, and why Chidambaram is wrong.

First, Chidambaram contradicts himself when he says he supports the idea of exempting irrigation from SIA, but not the other objectives mentioned in the NDA ordinance (defence, housing for the poor, rural infrastructure, industrial corridors, and many public-private social and infrastructure projects). The truth is irrigation projects (including dams) have caused more negative social impact since independence than industrial projects. So to say irrigation can be exempt, but not roads or factories, is surprising.

According to information put out by the Lok Sabha secretariat for use by members (which quotes an IIT Roorkee study), the bulk of the displacements of people related to irrigation projects, and not factories or mines. Says the note: “Around 21.3 million development-induced IDPs (internally displaced persons) include those displaced by dams (16.4 million), mines (2.55 million), industrial development (1.25 million) and wildlife sanctuaries and national parks (0.6 million).” (See the document here)

The logic of exempting SIA for dams and irrigation (which caused the bulk of the displacement of people since independence) and applying it to projects that displace the least number of people beats me.

Second, the fact is agriculture is becoming increasingly unviable for many farmers due to the fragmentation of land parcels. The only way to improve productivity is by higher investment, but this can’t be done on small pieces of land. According to this report by Harish Damodaran in The Indian Express, farm distress is likely to increase as global food prices start easing after a decade of big increases.

Between 2003 and 2011, he says, “the Food and Agriculture Organisation’s (FAO) food price index went up from 97.7 to 229.9, the effects of which were two-fold. First, it made the country’s farm exports globally price-competitive, resulting in their surge from a mere $7.5 billion in 2003-04 to $43 billion in 2013-14. Export-fuelled demand, in turn, helped improve domestic price realisations. Second, it forced the government to raise minimum support prices (MSP) to align them closer with global prices.”

But the situation is reversing. “From its 2011 peaks, the FAO’s food price index has since dropped to 188.6 in December. Between December 2011 and December 2014, international prices of soybean have fallen by a tenth. They have slid even sharper by 28-36 percent in cotton, rice, maize, palm oil and sugar, and 53 percent for rubber.”

What this implies is that profits from farming will slim down in future if we do not invest more in agriculture and related areas. Raising MSPs when global prices are weak will only make the subsidy burdens worse. Most important, the higher investments needed to boost agricultural productivity will not happen unless land parcels are consolidated by getting more marginal farmers to sell their land and seek other occupations.

Logically, thus, one should make it easier to buy farm land and get those dependent on it to learn other professions. New jobs won’t be created outside farming unless investments in industry and infrastructure are speeded up.

The answer to farm distress is to get more people out of farming, and this calls for a more flexible LARR act, not a more rigid one that Chidambaram seems to want.

Third, the most important reason for easing up SIA is simple: no infrastructure or industrial project will be viable if it is going to take four or five years to acquire land. Land may be a small part of a project’s initial total cost, but time bloats it. A project that starts out with one cost assumption will be much more expensive if it takes so many years to get the land for it.

A small example will prove this point. Some time back, CREDAI, the real estate developers’ lobby, made a simple proposition to the then Maharashtra Chief Minister (Prithviraj Chavan): Reduce the time taken to clear real estate projects from an average of two years to three months, and we will cut property prices by 20 percent.

In real estate, a 21-month saving in time apparently adds up to 20 percent in cost saving. So consider how much costs will bloat if an infrastructure project is going to take four or five years to acquire land. The actual price paid for the land could just double once you take the time value of money into account. SIA is nothing if not a huge addition to time costs.

Fourth, SIA and 70 percent consent are actually boosters to higher corruption – precisely the reason the UPA was voted out. This is how they would have worked in practice: the big landlords and politicians would acquire land from small farmers, aggregate it, and wait for the government or other parties to acquire it at an inflated price for infrastructure or other projects. Consider how much money would have to change hands for this. Another way SIA/consent would have worked was by bribery: since the idea is to pay two times the market price for urban land and four times for rural land, LARR would have ensured that those recording market prices will be bribed adequately to keep the reported value of land transactions low. This would be to ensure that double or quadruple the price would still be reasonable.

This is not to say that SIA is unimportant, but the only sensible way to calculate it is by looking at it from an economic viewpoint, not the social lens: the easiest way would be to calculate the net present value of future cash flows from using the land only for agriculture, and ensuring that the people affected by land acquisition are paid instantly for it at that rate. Add a stake for them in the developed land, and they gain additionally from any upside in project values after development. Another way would be to ensure that private parties get the land only on lease. This way, they can’t make a killing from it without sharing it with the landowners. Any change in land use pattern should automatically yield benefits to the land’s original sellers.

Trying to look at too many variables while acquiring land is counter-productive. You can never know the full social impact of any decision till much later. Chidambaram, of all people, should know that.

 

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Updated Date: Jan 19, 2015 18:49:11 IST