Should the state buy land for the private sector?

DEBATE

Rules, such as those of 'eminent domain', made sense when a public purpose was being served, but don't always hold true for private projects.

VINAYAK CHATTERJEE
Chairman, National Council on Infrastructure, CII

"It's okay to buy land for the private sector if it is in the 'public interest'. There are innovative ways to ensure farmers share in the fruits of progress".

There is nothing wrong in land being bought by the government and transferred to the private sector. In earlier decades, when the public sector was dominant, land was bought and transferred to set up steel plants, heavy machinery factories, and other such "Temples of Modern India".

Today, it is private businesses that are leading India's economic development, and they need land just as much as their public forebears did.

In order for government to acquire land and pass it on for private development, four conditions should be kept in mind.

One, it should clearly be in "public interest". Two, there should be appropriate commercial formats linked to whether land is a "factor of production" or "stock-in-trade". Three, there should be a clear prioritisation of the types of land being acquired. And four, there should be innovative compensation mechanisms to share the fruits of development with those compulsorily dispossessed.

Public interest: There could be three criteria for defining "public interest". One, the level of investment that is being proposed. Two, the numbers of jobs to be created "" directly and indirectly. And three, land required to facilitate and implement infrastructure projects like building roads, ports, airports, power plants and similar public utilities.

Use of land: Economists consider land to be one of the three factors of production, along with labour and capital. For a car factory, or a steel plant, land is only one of the factors of production. There is nothing wrong in state governments buying land to ensure that it is used as a factor of production whenever it meets the "public good" criteria mentioned above. The Tatas, for instance, are not likely to sell the land in Singur for real estate.

However, if land is a "stock-in-trade", then governments should generally not buy it, or if they do, then they must auction it to the highest bidder. For instance, for a real estate company, such land is only a stock-in-trade that it is holding and value-adding before selling it on to another buyer. In these conditions, it is wrong for governments to buy land, merely to facilitate it being resold for a higher price later. If it must do this, and use its powers of compulsory acquisition, then such land should be transparently bid out to maximise the revenues to the state.

Acquisition hierarchy: The first priority should be the millions of hectares of degraded land or wasteland that we have. There is a National Wasteland Development Board and other agencies, and they should be mandated with creating a database of available wasteland along with their possible alternate economic uses. Only if wasteland is not suitable should the government move to the next category "" unused land. For instance, many states have industrial development authorities that own industrial estates, many defunct. Similarly, irrigation departments, housing boards and so on, have land that could be considered before moving on to farm land. In farm land too, single-cropped land should be prioritised over double-cropped land.

Compensation: Most important is the issue of innovative compensation to farmers. For instance, can we learn from the Magarpatta model of farmers near Pune forming a cooperative and taking a stake in the development company? One proposal for consideration is that 10 per cent of the land acquired be kept away from immediate use. This land should be auctioned 10 years later to the highest bidder, and all the money so raised transferred to the original farmers.

In conclusion, in a rapidly industrialising economy, land will be needed. It is best that governments acquire land wherever required in large tracts. However, it should be done for the right reason, for the right use of the land, using the right category of land, and in the right way.

M VENKAIAH NAIDU
Senior BJP leader and Rajya Sabha member

"There is a huge difference in the price paid by the state to the land owner and the rate at which the land is resold to the SEZ promoters/ industrial units".

At the very outset, I would like to say that the BJP as a party is in favour of industrialisation and special economic zones (SEZs) as a tool of development. SEZs, for instance, bring in foreign direct investment, employment and foreign exchange into the country. My critique of certain aspects of the SEZ policy has to do with the experience in the last five years in terms of land acquisition. That also applies to other large industrial units.

Land acquisition through the state is inherently unfair to the land owner since it is done through the Land Acquisition Act, which is a unilateral piece of legislation, heavily favouring the state in its power to acquire land. The Land Acquisition Act had been brought in primarily to acquire land for developmental purposes, for purposes serving the greater common good, like roads, bridges and other such projects. In such cases, the state is free to determine the amount of compensation that land owners get.

The SEZ or industrial unit that is being set up is in that sense not a "governmental" project, but a commercial one. Our examination of SEZs/industrial units has shown that promoters prefer that land be acquired by the states in question and then resold to promoters as a chunk. They prefer this to negotiating with each farmer on market prices. The Land Acquisition Act is so skewed in favour of the state government, that many times, there is a huge difference in the price paid by the government to the land owner and the rate at which the land is resold to the SEZ promoters/industrial units. The promoters who gain a lot from the project, don't mind paying a bit more for the land. Would it not be better if this premium on the land could be encashed by the land owner rather than the government?

This puts the government in the role of a land shark or even a real estate agent, which is not its job. We want that SEZ promoters/industrial units negotiate with the land owner and determine a fair price through the mechanism of the market. The only time where such governmental acquisition should be condoned is for purposes of contiguity where, for instance, out of 100 acres of land required for an SEZ, 90 acres has been acquired and there is some difficulty over the remaining 10 acres. It is only in such cases that any intervention by state governments is justified.

The state must have a limited role in acquisition of land for any commercial venture. The role that we envisage for the state in this matter is that of an arbitrator. The state should declare a minimum support price on land, the point from where price negotiation should begin. It should determine that a fair opportunity price is paid to land owners and populations displaced by SEZs/industrial units and sale of land. When agricultural land use is converted into industrial land, value is added to it, and we want farmers to partake of that prosperity.

Rehabilitation and land acquisition are a complex process. If populations are displaced and not correctly rehabilitated, there is a danger of fostering social unrest. If during this displacement, land owners find that the price paid to them is far lower than what states are charging SEZ promoters, nothing could be worse.

In all this, it is important to remember that giving over of arable, fertile and irrigated land is not to be allowed. Our population is growing at 1.8 per cent while our agricultural sector is growing at 1.3 per cent. This clearly shows that by handing over arable land, we are playing with the food security of the country. Only fallow, unirrigated land should be used for SEZs/industrial units. Migration of occupation from agricultural to other sectors should also not be encouraged.