The Land Bill is ruinous - for all

Steel baron Lakshmi Mittal’s son Aditya has an interesting anecdote to share about his experience of travelling to China to explore the possibility of setting up a steel plant there.

“I flew into the airport, and there was literally red-carpet treatment,” he told Knowledge@Wharton . “Then I’m in a car on a highway, and there is no one else on the road. So I ask, ‘What’s going on here?’ And they say, ‘The (Communist) party secretary wanted to give you a nice welcome. This highway isn’t actually open yet.’”

More surprises lay in store for the Mittal scion when he arrived at the plant site. “I get there, but I don’t see any land. I see houses, lots of houses - a village. And I say, ‘Where’s the land?’”

[caption id=“attachment_313644” align=“alignleft” width=“380” caption=“The Bill will effectively defeat the government’s stated intention to promote industrialisation. Reuters”] [/caption]

“And the party secretary says, ‘Right here. In 90 days, everyone will be gone.’”

Aditya Mittal offered this breathless narrative to illustrate the ease of acquiring land - and generally doing business - in China, where the Communist Party rolls out the red carpet and forcibly evicts farmers and villagers from their land to facilitate the establishment of job-generating factories that, over time, made China the manufacturing capital of the world.

It’s the kind of thing that has business barons gushing about the ease of doing business in China - and compels them to compare the Indian system somewhat unfavourably.

India being a democracy, Aditya Mittal said, “setting up operations can be difficult… I don’t mean to denigrate democracy. But it takes time. You negotiate with different levels of government. You negotiate with tribal people. It can take two or three years.”

Yet, if a key provision in the Parliamentary Standing Committee’s report on the Land Acquisition Bill is accepted, Indian industry will have yet more reason to be disenchanted with the Indian government.The report recommends that that the government not intervene on behalf of industry to acquire land for private projects. Any land acquisition by the government, the report recommends, should only be for “public purpose” - to mean infrastructure projects, such as highways, railway, power and irrigation projects.

This provision in the Bill, which is ostensibly aimed at protecting farmers and landowners from exploitation, is problematic at many levels. Taken together with other regressive provisions that will push up land costs, the Bill will effectively defeat the government’s stated intention to promote industrialisation and stimulate manufacturing activity in order to create jobs. Worse, it will prove counterproductive in defending the interests of farmers and landowners - by throwing them at the mercy of the land mafia, which will almost certainly fill the vacuum created by the government’s retreat.

While tabling the Bill last year, Jairam Ramesh said that Rahul Gandhi was the moving force behind it; and indeed, every syllable in it reflects the unthinking do-goodism that the Gandhi scion is famous for.

Indicatively, anyone acquiring 100 acres or more of land in urban areas (or 50 acres in rural areas) will need to secure the consent of 80 percent of the landowners. Compensation for the land must be made at a minimum of four times the market value in rural areas, and twice the value in urban areas. In addition, once the land is developed, 20 percent of the land has to be given back to the owners, and 20 percent of profits from sale or transfers within 10 years too will go to them.

But in trying to “protect” landowners from “rapacious”,“profiteering” industrialists, the Bill defeats the government’s intentions on several fronts.

First, by artificially inflating compensation for land at the primary level, it skews the economics of land pricing - and renders the process of land acquisition for industrial activity more complex and expensive. It will effectively negate the government’s intention to ramp up manufacturing activity in order to create jobs. Over time, it will also slow down economic activity even further.

Second, the complexities in the acquisition process will dampen demand for land - and have the effect of tying farmers to their land in unremunerative and unproductive agricultural activity. Taken with welfare schemes like NREGA, which provide a bare-minimum income stream and keeps villagers “at home”, the Bill effectively limits the scope for enhancing labour productivity - and simultaneously drives up wage inflation for industrial labour.

Third, the government’s wholesale retreat from the land acquisition process on behalf of industry will actually work against the interests of the landowners. The government was not exactly doing industry a favour earlier: its engagement in the process served the purpose of focusing public scrutiny of the acquisition process, and ensured that it was not coercive. But without the government in the picture, the situation is ripe for corruption and coercion, with the land mafia filling the vacuum.

Industrialists’ yearning for a land acquisition mechanism like in China, where the ruling party helps them illegally secure land by forcibly evicting villagers, is motivated entirely by callous greed. It is nobody’s case that we need to replicate that; to that extent, a Bill that genuinely protects landowners’ interests and helps them secure fair compensation would have been welcome.

Yet, the land acquisition process in India under this Bill swings to the other extreme, and skews the economics of land pricing by artificially inflating the compensation, and therefore works against the interests of all three parties - the industry, the landowner and the government.

It is a classic demonstration of the folly of ill-conceived do-goodism: is it any surprise, given that the prime motivating force was a certain Mr Rahul Gandhi?