Land Tenure System in North East India : A Constraint for Bank Financing?

M. P. Bezbaruah

Introduction:

In India’s North Eastern region the land tenure system in the hill areas,
inhabited mostly by tribal population, is markedly different from the system
found in the plain areas. As in most other parts of the country, in the plains of
the North East individual rights over land holding are transferable and buying
and selling of such rights are ordinarily unrestricted. However in the hill areas
individual rights over land is yet to take the form of full property rights in the
sense that transfer of these rights is subject to restrictions if not virtually
possible. Non-transferability of holding rights renders land unsuitable as
collateral for the purpose of securing institutional credit to land holders. This
has long been cited as a constraint on extension of institutional credit in the hill
economies of the region. The present write up attempts to deal with the
following aspects of the land tenure systems in the region vis-à-vis the problem
of collateral: (a) which segments of the population and the economy of the
region are affected, (b) the genesis and evolution of the existing pattern of land
tenure systems, (c) consequences of the land tenure system, (d) the way to move
forward.

The Segments of the Population and the Economy Affected:

As mentioned above, the plains of the region are by and large free from the
problem. That leaves out the Brahmaputra and the Barak Valleys of Assam
(80% of the geographical area of Assam), the Imphal Valley of Manipur (10%
of geographical area) and the plain areas of Tripura (40% of geographical area)
from the prime concern of this exercise. It is worth mention that the plains as
usual are much more thickly populated than the hills and accommodates about
70% of the population of the region. Nonetheless the parts of the region
comprised of the states of Arunachal Pradesh, Nagaland, Mizoram and
Meghalaya, and the hill districts of Assam, Manipur and Tripura still accounts
for a significant part of the economy of the region in which penetration of bank
credit is hindered by non-establishment of transferable property rights on land.

The Genesis and Evolution of the Existing Pattern of Land Tenure System:

The genesis of the cleavage in the land tenure systems in the hills and the
plains of the region lies in the difference in the nature of traditional agricultural
activity. Agriculture in the plains has been settled. Land revenue being an
important source of income for the government, land had been surveyed, titles
had been settled giving ownership to individuals or institutions, and land
holders were given title documents from the governments. Holding rights
conferred in this manner are by and large heritable and transferable, and hence
these rights are of the nature of full property rights as in other parts of the
country. Obviously such land tenure system does not constitute an institutional
hurdle for delivery of bank credit backed up by land as collateral. If credit
delivery and absorption is still weak, it is because of other supply and demand
related factors.
In contrast agriculture in the hills, traditionally, has been shifting in nature.
Such agricultural practice obviously makes the population nomadic with no
settlement of population in a fixed location. Land used to be communally held
and the usufructory right to land used to be distributed to families according to
customary norms by the village council or the village chief as the case may be1.
Absence of land revenue did not necessitate cadastral survey and settlement of
land ownership. In this context it is perhaps significant to note that the system
of administration established in the plains of the region under British colonial
rule was not extended to the hills. The hills were classified as ‘excluded’ or
‘partially excluded’ areas and tribal communities living in such areas were
allowed to continue with their traditional arrangements of self-governance.
After independence, in an attempt to integrate these areas while preserving the
tradition of self-governance of the tribal communities, the Sixth Schedule was
incorporated in the Constitution of India. The Sixth Schedule provided for
District and Regional Councils for the erstwhile ‘excluded’ and ‘partially
excluded’ areas and these institutions were expected to integrate such areas with
the modern system of administration while preserving the traditional autonomy
and self-governance of the tribal people. But these arrangements failed to meet
the aspirations of the newly emerging political leadership of some of the tribal
groups and movements demanding autonomy of various degrees followed. The
Central Government responded to their demands by carrying out several rounds
of reorganisations of the region and curving out new states2. These post
independence statutory developments, however, have not generally resulted in
convergence of traditional tribal self governing institutions and modern state
oriented administrative structures, with the former retaining considerable
legitimacy and acceptance especially in matters relating to customary rules and
norms3.
Meanwhile penetration of market forces, the practice of settled cultivation
and also urbanisation has induced settling down of hill tribal population in fixed
locations. The process has been instrumental in emergence of individual
holdings in hill areas. For instance, in Nagaland as far back as 1976-77, 86% of
the holdings covering 89% of the area under terrace cultivation was wholly
owned and self operated (Report of the Agricultural Census quoted in Agarwal,
1987). This development has, however, not been backed up with cadastral
survey and land settlement which could have been followed up with giving
documents conferring legal ownership rights over holdings. The evolution of
land holding rights to full property rights has hence remained incomplete4.
In those parts of the hills of the North East where individual holdings of land
has emerged, transfer of the holding is possible and it takes place frequently but
within the tribal population only. Details of the modalities of such transfers
differ from state to state and in some cases even within the state. But the broad
pattern is as follows: Transfer by sale of individual holdings within a village can
take place within members of the same tribe, and such transfers are recognised
by the village community. In some cases, sale deeds on plain or stamped papers
are executed by the transacting parties to record the transfer. But the process
does not result in any formal record or documents conferring land holding
rights. Inter-tribal transfer of individual holdings of village land is generally not
in practice, though such transfer of communally held land are know to be in
practice. In towns, transfer of land holdings among individuals of even different
tribes but of the same state is generally permissible. But transfer of land holding
rights to non-tribal is prohibited by law in all the hill areas to prevent alienation
of tribal land. Certification of holding rights by traditional authority and/or by
state government representatives has come under practice in most areas.
Mizoram has made a bigger stride in this context than the other hill tribal areas
of the region. Here the revenue department has notified 22 towns and 38 large
villages where Land settlement certificates (LSC) are given (Lianzela, 2006).
But by and large the process of certification is neither systematic nor
exhaustive. Thus the process of evolution of property rights in the hill areas of
the North East is fraught with ambiguity and absence of definite road map.

Economic Implications of the Land Tenure System:

From the above section it is clear that at present in the hills of north east we
have broadly two systems of land tenure existing side by side: (a) community
ownership of land in areas where shifting cultivation is still in vogue: here
households enjoy user rights to land allocated to them by traditional authority
and (b) individual ownership of land which is transferable only within members
of local tribal community.
 The first type of land tenure is not only problematic as far as use of land as
collateral for advancing bank credit is concerned, but does not even create
incentives for investment for land improvement and conservation of its long
term use-value. With shortening of jhum cycles due to population pressure and
reduced availability of land for shifting cultivation, economic and
environmental sustainability of the practice is getting progressively reduced.
Transition to more sustainable alternatives like plantation and horticulture will
require infusion of investment. Lack of progress towards document based
property right regime can hinder the inflow of investment for such activities,
especially in the form of bank credit5.
In areas where individual holdings have emerged, problem in use of land as
collateral for bank loan can yet arise because of absence of documents formally
entitling individuals with ownership. Without such a document banks are ill at
ease to take land holding rights as collaterals for advancing credit. Though the
process of issue of certificates conferring land ownership of land to individuals
have started and has been more or less present in the urban areas, the
restrictions on transfer of such land reduces the value of land as a mortgage.
While this issue needs to be addressed, we do not intend to suggest removal of
all restrictions of transfer of land especially away to non-tribals. The reforms in
this area must contain adequate protection for non-alienation of tribal land till
the time such restrictions remain relevant and necessary.

The Way to Move Forward :

It appears that the issue of land holding rights in hill areas of the North East
has been allowed to drift on its own course. Absence of systematic progress in
this area has had several adverse consequences besides acting as a stumbling
block for extending bank credit. While old order of community ownership is on
the wane, absence of institutional reforms hastening establishment of a formal
property right regime has resulted in growing intra-tribal inequality in land
holding and emergence of landlessness. Thus land reforms, cadastral survey and
land settlement are imperative not only for addressing the issue of collateral for
banks but also to facilitate speedy and equitable transition of shifting cultivation
based tribal economies to modernised market based ones. However such a
reform process can not be expected to be forthcoming in a short span of time.
Hence it is also necessary to explore other ways of addressing the problem of
collateral.
One obvious way out seems to be the use of the social capital in the form of
community bonding within tribes as alternative collateral. It is observed that
such bonding has remained strong within tribal communities even when
communal ownership of land has been giving way to individual ownership. In
view of that possibility of a community guarantee (in line with group guarantee
in case of SHG based micro-credit) in lieu of land as collateral for bank finance
naturally comes up6. However in this context an observation made by some
researchers is significant. According to them though the community bonds are
often robust and the customary law usually holds in matters related to tradition,
the communal control does not necessary extends to the non-traditional sphere.
Thus a community guarantee to back individual credit may not be forthcoming
let alone be effective.
This however does not mean that the social capital is useless for the purpose.
Though the existing traditional institutions may not be cut out for non-
traditional activities such as guaranteeing bank loans, taking the nucleus from
the existing traditional institutions, new institutions can be engineered which are
customised to support development oriented activities. The village development
boards (VDB)7 of Nagaland are shining examples of such institutions, which
derive their strength and acceptance from synergy with traditional tribal
institutions “ in contrast with the Districts Councils of Meghalaya which have
been constructed independently of the traditional institutions with which they
often have frictional relationship. At the grassroots level too, voluntary
organisations have been active in organising and moulding groups and
community based organisations to utilise the existing social capital in tribal
societies for new development oriented activities.
Financial institutions can also contribute to soften the situation by adopting a
flexible rather than conservative approach. The provision for discretion in
advancing loans up to Rs 50,000/- for agriculture and Rs. 5 lakhs for agri-clinic
and agri-business without margin/security requirement has already been
created8. If such provisions are utilised, most of the credit needs for supporting
production activities in rural economy of the North East can be met. Once banks
gather confidence from their experience with such lending activities, the
concession can be extended to other sectors such as small scale industry and/or
the waiver limits can be raised for the region in view of the constraint arising
from the existing state of land tenure system.
For urban areas in Mizoram, SBI is accepting documents showing ownership
of land holing by individuals as collateral9, though such ownership is not freely
transferable. This has perhaps been possible as the process of issue of land
ownership certificates in the state has made better progress than in most other
hill areas of the region – a fact that reiterates the necessity of cadastral survey
and land settlement as the ultimate solution to the problem.
To enable members of hill tribal communities of the region to avail housing
loans, SBI has also come up with the Tribal Plus schemes10 under which loans
up to Rs. 5 lakhs are given without land collateral. However, the facility is
available only to permanent employees of the central or the state government or
public sector undertakings or reputed private sector units.
Nonetheless some initiative have been made so as increase flow of credit in
spite of lack of adequate movement in the form of establishment of transferable
property rights on land in the hill areas of the region. If such initiatives are
found to be successful, their wider replication can ease the collateral related
constraint on credit delivery to a large extent.
 For larger investment projects such as a hotel, a cement plant or a plantation,
much larger credit support will be needed. Given the state of development of the
hill economies of the region, such projects can come up only with active support
of the state government. A pro-active state government can even come forward
with government guarantee to help investors to access credit. The problem of
moral hazard with government guarantee is however well known. Default of
repayment of government guaranteed loan is not confined to only targeted
lending like PMRY loan, but is frequently found in case of industrial term loan
too, as many borrowers tend to believe that they can get away without paying
up.