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Bridging the trust deficit

Bridging the trust deficit

The real issue of land acquisition is not about converting agricultural land into industrial and urban use, but rather the process of doing this, in a manner that nobody feels cheated, feels Manish Agarwal.
The Land Acquisition Bill continues to be a serious political issue, under hot debate. The issues of right proportion of landowners who agree to sell their land, and the multiple of market prices that is appropriate, are primarily political issues, and may have limited economic basis to resolve. However, the real challenges underlying these top issues arise from faulty processes that perpetuate the perception of conflicting interests.

First, the context of the conflicting demands on land. According to the Draft National Land Use Policy, 46 per cent of land in the country is under agriculture and 50 per cent is inhospitable. Two per cent of the land is urban and one per cent is under industry. The argument that industry should use non-agricultural land only, is fallacious. Success of the ´Make in India´ vision depends on creating industrial locations that compare well with competing locations elsewhere. Being close to an urban center is one of the critical parameters that investors in manufacturing consider. As our villages grow into towns, and towns into cities, it is inevitable that the best locations require a choice between agriculture and industry/urbanization. Besides, for linear infrastructure like road and rail, avoiding agriculture lands can be impractical.

So, what should drive such choice? Economic growth and job creation, considering that India needs to grow at 9 per cent per annum (according to PwC´s report on the Future of India), and generate over a 100 million jobs in manufacturing. With 46 per cent land use, agriculture accounts for 14 per cent of India´s GDP, while industrial and urban centers occupy 3 per cent of the land and contribute 68 per cent of the GDP. Based on the 2011 census, a hectare under agriculture supports 5-6 people, while similar land under industry and urban areas, supports 6 times as many. For India to be able to generate enough economic activity to provide jobs for its growing population, the share of manufacturing in the GDP has to grow significantly, and this will need agricultural land to be diverted to industry, urbanization and infrastructure. Will this choice be seriously detrimental for agriculture? It will not, if much needed agricultural reforms progress in parallel. AskHow (a volunteer group) has estimated that even if all Indians shifted from working in agriculture and living in villages to working in industry and living in cities, 17 per cent of agriculture land would be needed to house this extreme shift. The potential for better land use in agriculture is several times higher than this. India´s rice yield is half of that of the world average, and about a third of that in China. Similarly, the FAO estimates that wheat yield can grow by 56 per cent without any significant investments.

The real issue then is not about converting agricultural land into industrial and urban use, but rather the process of doing this, in a manner that nobody feels cheated. AskHow volunteers have listed out several suggestions to enable this, by removing middle men and making the process more transparent and certain.

  • Digitization of land records, to bring legal certainty to transactions.
  • Transparent guidelines for land-use change, to minimize ability to hoard ahead of formalizing the land use change. Insider trading laws should also be made applicable to prevent misuse of information about impending land use change.
  • Mandatory timelines for compensation and resett¡lement, overseen by an independent agency, to provide certainty to landowners.
  • Different multipliers to calculate compensation across different regions, considering that cash payments involved in transactions distort the information about the correct market price of land.
  • Financial training of landowners to conserve and invest the compensation received for regular income, to avoid imprudent wasting of money.
  • Vocational training of landowners.
  • Training of government officials on urban planning, to ensure proper and speedy implementation of trans¡parent guidelines. Where land choice is possible, a reverse auction tender can bring further transparency.

While the Land Acquisition Law is important, there are also several implementation measures required in addition, to address the gaps in the land acquisition. Addressing these gaps will be critical to bridging the current trust deficit, and bringing better alignment of interest between the buyers and sellers of land.

The article has been authored by Manish Agarwal, Leader Capital Projects & Infrastructure, PwC India. Views are personal.

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