labels: economy - general
An innovative price mechanism for farmland acquisitionnews
05 April 2007

Mahesh Vijapurkar, former deputy editor, The Hindu, supports an innovative farmland pricing mechanism that equalises the opportunity for gain amongst all in the vicinity of the project.

In recent times, two interesting developments, centred around special economic zones and land acquisition have taken place, One is outright cancellation of the Nandigram proposals of West Bengal where the state has decided to retreat. The second is a proposal being worked by the centre wherein the state shall not get involved in acquiring land for private industrial activity but confine its role in land acquisitions for pubic projects, like roads, dams, power generation projects, etc.

The two are not unconnected developments. If the people of Nandigram had not become agitated to the extent of becoming violent, the state would not have backed out. And in the proposal - one hopes it does see the light of the day - to shift itself out of land acquisition for the private sector is the acknowledgement that only market price mechanisms ought to work in procurement of land. However, the government may intervene if about 90 per cent of land has been bought up but patches remain. Then the government should ensure a price that is equal to the highest paid for any parcel of land.

By now, it is clear that the thinking classes have begun to worry about the substantive issues that surround the acquisition of land, where more often than not, the 'eminent domain' doctrine is invoked and land owners have no alternative but to agree to give up titles to their land. In my view, it is time that the country's collective conscience is roused; it is time the landowner is not bulldozed by the combined might of the state and big business into being forcibly alienated from his ancestral property, often the sole means of his livelihood.

Land acquisition by the government is not a new beast. It has been there right from 1894 when the first enactment emerged during the British Raj and since then, it has been a singularly effective tool to get the crucial asset to build public projects and private industrial enterprises upon. However, the sudden emergence of special economic zones with its inherent appetite for huge swaths of land has awakened the people to the need for fair and equitable deals for landowners who are forced to part with their assets.

In my column last month (See: Not low prices, but equity please!), I had suggested not just a fair price for the land plus an enterprise value to the farmer to be converted into equity in the new project that impinges on his land. That, it can be argued, would convert the landowner from a mere stakeholder in the national enterprise towards development into, quite literally, a shareholder in the project. Some alert readers have pointed out some aspects of considerable interest.

One of them is K G Solegaonkar, an alumnus of IIT, Powai, and then Indian Institute of Management, Ahmedabad, who came up with an entirely new price mechanism. He had shed his corporate skin long ago, abandoned the humdrum and taken to spiritualism. But he was stirred enough to suggest that a model of incremental pricing for lands acquired was not only possible. That model, he implies, can prevent premature erosion of the farmers' lands.

The roots of discontent
His argument is that it is difficult to pin down what would be the proper price of land, because market prices would be in relation to the demand and supply between farmers who sell to curtail their holdings and those who buy to expand theirs. I acknowledge that sale of farmlands for non-farming activities is not a normal activity and needs state approval, and the commerce is generally among the agrarian community. The terms of trade change when it is sought for non-agrarian purposes.

That's when suddenly the demand surges. And a whole community, which has been tied to the land for generations, suddenly feels threatened. And as the Asian Development Bank pointed out recently, it is not just the landed but also the landless dependent on the land directly or indirectly get drawn into the new maelstrom. It is not as if a patch of land is changing hands within the village; a new economic intrusion is going to take place and rapidly, their lives would undergo vast changes. The money that is swapped for their lands would hardly constitute enough resources to develop a new livelihood.

These people in the ruralscape sense that from the centre of their own universe, they would move to the fringe of another where they are no more masters. Their hitherto predictable life stands on its head and uncertainties loom large, including the prospect of the seller getting far less than the neighbour whose land was not being bought up. This is where Solegaonkar has a refreshingly new perspective to offer. Land prices of those not bought up always go up because of the project that is built. Others whose lands were untouched in the acquisition stand to gain more.

For instance, the price of land, even on the most generous terms and far exceeding the Ready Reckoner prices would be no patch on the nearby piece of land, which would eventually get converted into real estate, for instance, to cater to private housing or commercial use in close proximity of the project.

Let us consider a dam. The price paid for the land to be submerged would be nothing compared to the land on which shops come up to cater to the project staff. And it would be miniscule compared to the value that is put on land, which gets irrigated elsewhere because of the dam.

It is axiomatic that land prices escalate once the project is announced but not on the same scale as the upward spiralling that takes place once the project - be it a dam, a factory or a big bang special economic zone (SEZ) is announced. Therefore, says Solegaonkar, it has to be considered that land as an input for a project has many characteristics not shared by other inputs. The value of surrounding land increases only because of the procurement of the nearby land for the SEZ or highway or dam.

"May be the model to follow is to fix a percentage of the difference in price of procurement and the price of sale in adjoining plot sales. That should go to the ones whose lands are acquired. For this purpose, all the sales of land, say, starting five years before and going up to perhaps ten years after the project is announced, should be considered for fixing the percentage for sharing", he said in an email. I have not heard of a better case that ensures not only a basic but appropriate price and insures against the certain loss of potential earning had a particular landholder's land not been targeted.

In other words, negative impact of the lottery of life and land is neutralised and were you to look deeper into what Solegaonkar advocates, it ensures not merely equity to an individual whose land was ordained to be taken away but equalises the opportunity for gain amongst all in the vicinity of the project.

If land is a community asset, and the landholders have notional titles but the state has its 'eminent domain' rights over it, one could not ask for a better deal than this incremental pricing to overcome the mischief of differential gains. Every one gains equally.

Thank you, Solegaonkar, for that thoughtful email. I thought it should be shared with the world.

also see : SEZs unconstitutional; legal expert

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An innovative price mechanism for farmland acquisition