A new land law in sight, finally

Finally, a serious roadblock in the country’s march to industrialization may be removed soon. The Union ministry of rural development has unveiled a draft National Land Acquisition and Rehabilitation and Resettlement (LARR) Bill. Once a law, LARR could potentially end arbitrary land acquisitions under the Land Acquisition Act of 1894.

Any well-functioning market gives clear signals and prices are market-driven. The 1894 law with its ill-defined “public purpose” clause did not let this happen due to constant state intervention. Over the past many decades, judicial interventions ensured some level of justice for those whose land was being acquired. That was only one issue: many state governments have abused another provision—the so-called urgency clause that has led to flagrant violations of the power of eminent domain.

The new Bill promises to end all this. It is, however, only the first step, for along with positive aspects such as the careful definition of public purpose to include industries and infrastructure—private ones included— the Bill may have overshot in certain other directions.

In this respect, two issues merit attention. One is the issue of the cost at which land is to be acquired. Under LARR, the compensation scheme mandates land acquisition at six times the market value in rural areas and twice the market rate in urban areas. While the 1894 Act led to landowners being paid a pittance, LARR takes a wild swing in the other direction. This will lead to serious distortions in the market. At these rates those industries that have the potential to generate employment—the small and medium enterprises—will be pushed out of the land market. Those who can afford such prices—very large industrial houses—can always substitute capital for labour, defeating the purpose of industrialization.

The second issue is that of the resettlement and rehabilitation scheme (as detailed in schedule II and III of the Bill). These benefits are quite generous. A cursory reading of schedule III shows that many of the facilities that are to be provided in case of land acquisition beyond a threshold, do not exist in large parts of the country. When the government has not been able to provide these to citizens, why should these “rights” be created out of thin air? If anything, schedule III reads like a catalogue of government failures to provide basic facilities to citizens that is now sought to be imposed as a cost for industrialization and development of infrastructure. This is bound to be a counterproductive step.