The real disaster: price of urban land

A new land acquisition law, the land acquisition, rehabilitation and resettlement act (LARR), was enacted 10 months ago by the UPA government with widespread support from almost all political parties, including the BJP. This new law is apparently going to be “amended” or “diluted” by the new NDA government led by the BJP. Since hypocrisy and opportunism abound in Indian politics, let us not waste time bemoaning yet another example. Let us instead focus on what the new thinking on land acquisition appears to be and what, instead, it should be.
At the outset, let me be clear that I do not have personal or inside knowledge on the “new” thinking. My information comes from the media, including this newspaper, which claims to have seen documents that outline the proposed amendments. That said, let us consider what is at stake here.
The LARR was created by the Congress in the mode of its other landmark laws on information, education and food — using a rights-based approach. It was a reaction to serious conflicts over land acquisition (especially in well-known cases in Singur, Nandigram, Niyamgiri, Kalinganagar and others), which had come after the injustice meted out by the state for several decades during massive land acquisition drives for India’s modernisation and development.
The primary objective of the LARR was less to enable land acquisition than it was to deliver “fairness” to the people affected by it. This is important: the core purpose of the law was changed. The LARR expanded the definition of project-affected people and genuinely expanded the rights, protections and compensations for people who lose land or livelihood as a result of acquisition. It was a purely political and fundamentally bureaucratic approach. And, at the same time, the LARR was designed with no recognition of the economics of land. Its creators appeared to have forgotten that eminent domain laws exist everywhere (not just in India) to provide public goods, not protect private interests. In attempting to redress the balance between public and private interests in land, the LARR went too far. It raised the price of land acquisition to unsustainable levels.
The price of land acquisition has two elements. One is the direct price paid for acquisition, and rehabilitation and resettlement (R&R). Think of this as the cash component of the acquisition price. The second element is an indirect price. This includes transaction costs (such as the cost of doing social impact assessments, running the massive new multiple-layered acquisition bureaucracy, and so on),and opportunity costs, which arise from the time taken to conclude an acquisition, time during which capital is not invested and production does not take place. Reasonable estimates suggest that if all the steps defined in the LARR are accomplished in the minimum allotted time, it will take at least five years to conclude a land acquisition.
The BJP-led government has plans to adjust both elements of acquisition price. It apparently wishes to make the definition of project-affected people more stringent, so that fewer non-owners are eligible for compensation and R&R. But the new government’s real target seems to be the indirect costs of acquisition. It is considering a series of amendments to lower these indirect costs — by partially or wholly eliminating the social impact assessment element, eliminating project categories that would need to be given “consent” by the project-affected people, reducing the share that would need to provide “consent” (from 70-80 to 50 per cent), and so on.
Some of these ideas are useful, notably to reduce the use of social impact assessments by setting reasonable triggers. The trigger should use population rather than acreage thresholds. Some ideas are trivial, especially those that tinker with the “consent” threshold. It is more important to devise a just and speedy referendum mechanism (which remains opaque even now) than to play with these percentages. Some ideas are unjust and unwise, especially those that seek to avoid compensating livelihood losers or giving them voice.
There are many serious problems with the LARR, so serious that I have argued that it cannot be implemented, and that it is likely to lead to the end of eminent domain. Some of the problems do indeed arise from the indirect costs of acquisition, but the deepest problem comes from the direct or cash cost. And the most significant of these is the doubling of the price of urban land.
The compensation mechanism in the LARR is arbitrary at best and disastrous at worst. The blanket four-fold multiplication of “market price” in rural areas is arbitrary. Why four? Why not three or five or 10? The assumption appears to be that all rural land is the same, from Chhattisgarh to Punjab, from north Bihar to south Kerala. That is just absurd.
But the real disaster is in urban and peri-urban areas. I have shown that the price of urban land in India is the highest in the world. That price is already a major constraint to development and the provision of public goods. It may indeed be the single-largest constraint on development in India now. To double that price would have consequences that go far beyond the imagination of the designers of the LARR. This has to be corrected.
If the BJP intends to be serious about getting to a just and practical land acquisition law, it must begin by focusing on the direct price of acquisition of urban land.