Column Small car, big problem

Written by Amitendu Palit | Updated: Aug 27 2008, 05:40am hrs
Will the Nano roll out of Bengal Or will it get going from some other part of India These are questions that will be answered pretty soon. But irrespective of the Nano, another question will remain unanswered. Has land acquisition become the biggest roadblock for Indias industries

Singur has brought land acquisition back in the spotlight. Whats the main issue There is opposition to industry coming up on fertile farming land. Such industrialisation is allegedly counterproductive as it affects crop output and displaces farmers from their livelihoods. This anti-people industrialisation is taking place in tacit collusion between industrialists and governments. The latter are helping the former to acquire land.

Some thoughts need to be pondered before one agrees or disagrees with the above.

First, industries, at least like the one at Singur, are tangible entities. They have sizes, structures and shapes and require space for construction and function. They cannot come up in vacuum. They need land under their feet to grow. New industries require new lands. The stock of industrial assets cant increase unless they are created afresh. So industrialisation cant occur without land.

Second, industries have nothing to do with the fertility and use of land. Nanos will roll out of factories irrespective of whether they stand on tracts that grew cotton or mushrooms. Industries only require vacant land.

Third, which vacant land will industries come up on Investors choose locations based on features like connectivity and contiguity. If adequate information is not available, they approach authorities. They might also do so once they identify a land and examine the feasibility of building an industry on it.

Four, identification of land doesnt mean its possession. Vacant plots also belong to somebody. It doesnt matter if they are barren and uncultivated. It is up to the owners to decide whether they wish to sell their land. If they wish to transact their asset at a mutually agreed price, then land becomes available for industry. Otherwise, no.

If industrial land had been transacted in an open market in a fair manner, then Singur and Nandigram would have remained obscure. Their fame has much to do with a particular legislation framed in the colonial era. That is the Land Acquisition Act of 1894.

The interesting part of the Act is that it enables governments in India to acquire land for public purposes. The even more curious part is that different state governments can define what is meant by public. So, if state governments feel that a particular industry needs to come for public purpose, it can go ahead with acquisition.

The ambiguity over public is not all. Theres more to it. Suppose land is acquired by authorities for public purposes. The erstwhile owners should be compensated following acquisition. But how is the compensation decided Basics say that an asset derives its value from its use. A plot of land growing paddy in Singur has a particular value. The same plot will experience a sharp increase in value once it features within the premises of the factories building the Nano. Originally, the plot was subjected to agricultural use for subsistence occupation. Later it is put to industrial use or for commercial purposes. The valuation gains for the plot are significant.

So, what should the farmer get as compensation This compensation should be the price quoted for his asset. Simple economic principles say the price quoted for a property today should factor in the scope of future earnings. So, compensation should be based on the future use and concomitant appreciation.

Issues over fair price and compensation could have been avoided had industry negotiated directly with farmers. But the pitch gets queered once governments enter the fray. Particularly if they start acquiring land on behalf of industry by taking recourse to public purpose. Land Acquisition Act of 1894 enables them to do so. But the moment they do, they destabilise the land market. Their motives are questioned along with their ability to decide and disburse compensation.

Indian farmers are not fools. They are conscious of their rights. They are not opposed to industrialisation. But they are aware of the returns that their asset can fetch. Why cant they get an opportunity to be price setters rather than price takers They cant, till Land Acquisition Act remains. As long as the Act is not amended, property rights of farmers can be impinged as governments will have the scope of acquiring land. Until the Act is amended, the land market for industry will remain locked. And industrialisation in India will continue to be in the limelight for wrong reasons.

The author is a visiting research fellow at the Institute of South Asian Studies under National University of Singapore. These are his personal views