Agrarian crisis: Free up land-lease markets

Updated: August 19, 2019 4:47:11 AM

The Committee is supposed to submit its report within two months. The Committee’s terms of reference (ToR) largely focus on agri-market reforms ranging from agricultural produce and livestock contract farming and Services Act of 2018 to Essential Commodities Act (ECA) and e-Nam etc.

Agrarian crisis, land lease market, financial express, financial express editorial, Essential Commodities Act, ECA, Narendra Modi, Narendra Modi govt, Model Land Lease Act, NSSO record, NABARD, Joint Liability Group, JLGThe fear of eviction also disincentivises them from making any long-term investments in land improvement, resulting in low capital formation and, thereby, low farm productivity. (Reuters)

By Ashok Gulati
& Ritika Juneja

Early on in its second term, on July 1, 2019, the Narendra Modi government (Modi 2.0) constituted a High Powered Committee of Chief Ministers for “Transformation of Indian Agriculture”, with Devendra Fadnavis as its convenor. The Committee is supposed to submit its report within two months. The Committee’s terms of reference (ToR) largely focus on agri-market reforms ranging from agricultural produce and livestock contract farming and Services Act of 2018 to Essential Commodities Act (ECA) and e-Nam etc. On the supply side, it does talk of quality seeds and farm machinery etc, but relatively, the emphasis seems much more on getting the markets right. We very much welcome this approach as we feel that agri-market reforms is a low hanging fruit; we highlighted in this very newspaper the need for setting up an Agri-Markets Reforms Council on the lines of GST (bit.ly/2KQQrAN).

However, to transform agriculture in the medium-to-long run, there is a need to undertake some fundamental reforms in land institutions too. This is missing in the Committee’s current ToR. But, it can be considered under any other issue that helps transform agriculture. It may be worth recalling that the Modi Government in its first term (Modi 1.0) had set up an expert committee on land reforms, chaired by T Haque, which recommended a Model Land Lease Act (2016). It is high time for this High Powered Committee of Chief Ministers to take it up for implementation. Better late than never.

Agrarian crisis, land lease market, financial express, financial express editorial, Essential Commodities Act, ECA, Narendra Modi, Narendra Modi govt, Model Land Lease Act, NSSO record, NABARD, Joint Liability Group, JLG

There are two fundamental reasons why there is urgent need to liberalise land lease markets. First, the average holding size has been declining in India for long (see graphic), raising questions about its economic viability in earning a respectable level of income for the family. Second, restrictive tenancy laws have generated oral (informal) tenancy that is said to have a much higher magnitude than formal tenancy, and is adversely impacting efficiency of land use.

As per NSSO records for 2013-14, only about 10% of agricultural land is under tenancy, down from 20% in 1953-54 (see graphic). However, experts believe that official estimates hugely under-report the actual tenancy. It is generally believed, based on several micro-level surveys, that about one third of agricultural land is under tenancy. It is these oral tenants that are most insecure. Neither do they have legal sanctity nor do they get recognised as farmers, which keeps them deprived of institutional credit, crop insurance, government-sponsored social benefit schemes and relief support. The fear of eviction also disincentivises them from making any long-term investments in land improvement, resulting in low capital formation and, thereby, low farm productivity. Even land owners suffer from the fear of losing their ownership rights, if they lease out for longer terms. As a result, many of them prefer to keep their lands fallow. Rough estimates suggest that about 17 million hectares of cultivable land is lying fallow.

In this context, it may be worth noting that China has lately revised its land lease laws, where farmers can lease out their land even to corporate entities for cultivation for up to 30 years. Such a move can help attract long-term investments in high value crops, such as orchards.

One reason for landowners’ fear of losing land due to long-term leases is the absence of tamper-proof land records with the revenue departments. So, one of the lowest hanging fruits is to digitise and geo-tag land records, and link them with farmers’ Aadhaars and even bank accounts. This will create a centralised, transparent and easily assessable land records system in India. It can then help any class of farmers operating on a piece of land to access bank credit, crop insurance, etc. Though efforts are underway, the achievement is still far from satisfactory. Only three states (excluding UTs), viz. Odisha, Sikkim and Tripura, have achieved 100% computerisation of land records, while many others have computerised 80-95% of land records. Liberalising land lease markets, with computerisation of land records and geo-tagging of farms, though challenging, can give a high pay-off, with enhanced capital formation and even linking crop insurance to that platform.

In this context, one may recall Andhra Pradesh’s Land Licensed Cultivators Act, which demonstrates a suitable channel to deliver loan, subsidy, crop insurance, relief support, etc, by issuing loan eligibility cards to tenants, who raise crops with the explicit or implied permission of the owners. Kerala’s Kudumbashree initiative, too, is another innovation that is making strides in poverty eradication and women empowerment. The group land leasing by Joint Liability Group (JLG) under Kudumbashree is a drive where women formed into JLGs are cultivating leased-in land with assured access to agricultural credit from NABARD and other banking institutions, increasing their returns from farming. Therefore, both Andhra Pradesh’s and Kerala’s innovative institutional experiences suggest a key lesson for policymakers to liberalise the restrictive land leasing laws in the country, while fully protecting the rights of the owners.

These reforms in land markets have been lingering for a long time due to lack of political will. But Modi 2.0 has the political mandate to get it through, if it is put on the priority list for reforms to transform Indian agriculture. We feel this is the most opportune time for the High Powered Committee of Chief Ministers to take it up and, once and for all, carry out fundamental structural reforms in the institutions (rules of the game) governing land markets. Can they do it? Only time will tell.

Gulati is Infosys chair Professor for Agriculture and Juneja is Consultant at ICRIER. Views are personal.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.