Land​ ​acquisition​ ​and​ ​the​ ​rent-seeking​ ​state1

SANJOY​ ​CHAKRAVORTY

LAND acquisition has been much in the news for the last decade. First, there were the
conflicts: in mining sites like Jagatsinghpur and Niyamgiri, then in Special Economic Zones
like Nandigram and Maha Mumbai, later in various locations, from car factories like Singur
to highways like the Yamuna Expressway. Next, there was the putative resolution to the
conflicts – the Right to Fair Compensation and Transparency in Land Acquisition,
Rehabilitation and Resettlement Act, 2013 (henceforth LARR) – designed by the Congress-led
UPA. Most recently, there was the ordinance and proposed amendment to the LARR by the
BJP-led NDA. As I write this, the BJP has backed off its amendment because, after a string of
electoral defeats over a year, the Congress finally (re)discovered and effectively mobilized on
a​ ​galvanizing​ ​issue:​ ​land.
It would be a mistake, however, to view this intense politicking over land acquisition law
through the narrow time frame of the immediate present. Land is arguably the most
important subject in modern Indian history. Capturing land first, then its use and value from
it, has arguably been the most important exercise of state authority in all of recorded Indian
history. What is unfolding now is but the latest chapter of a living epic. In this essay, I take
the long view on land and the structural forces that stimulate the struggles over it, so as to
better​ ​understand​ ​precisely​ ​what​ ​is​ ​at​ ​stake​ ​right​ ​now.
The state is the most important institution on issues relating to land. It has three broad
powers. On land ownership (or what ownership means, who can own what and how much,
how to change ownership from one entity to another); On the division of land output
(between the producer of the output and the state; i.e., the rate of taxation); On land use (or
the activity – such as agriculture, industry, infrastructure, housing – that takes place on a
given parcel). In India, the state has usually been defined by its rules on land. To put this in
another way: what the Indian state did with land identified its true purpose. I submit that the
colonial state was an ‘expropriating state’; for about the first five decades after
independence the state was a ‘developmental state’; and for the last two decades it has been
a ‘rent-seeking state’. The remainder of this essay explains these categories and their
consequences.
In this, the 800th anniversary of the Magna Carta, we are reminded that the document
marked an important point in a long process of negotiation of powers between the individual
and the state on land rights. This process was not linear in time, nor concurrent in space. At
one extreme there are no individual rights, but only limited collective rights (such as in many
ancien régimes, leading up to collectivist modern states like the Soviet Union and China). At

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​ ​http://www.india-seminar.com/2015/674/674_sanjoy_chakravorty.htm
the other extreme are the contemporary liberal democracies of the developed world, in which
the protection of private property – mainly land – from state authority is the foundational
principle of the rule of law. Here, there are land markets that operate under state regulations
(like zoning), which are justified by a public good or ‘externality’ argument. The same set of
arguments is used to create ‘eminent domain’ or ‘taking’ laws; i.e., the conditions under
which​ ​the​ ​state​ ​can​ ​force​ ​an​ ​unwilling​ ​owner​ ​to​ ​sell​ ​his​ ​land.

T​he terms that frame this discourse – individual and collective rights, rule of law, land
market, private property, public goods, eminent domain, and so on – were introduced in
India by the colonizers, whose ideas may have been lofty but actions far less so. Their actions
revealed their true purpose, and, until about 125 years ago, that purpose was to maximize
land revenue. All rules, on land and otherwise, were geared toward that goal. This is a
simple point, but very important. The pre-colonial states – the Mughals in the north and east,
the Marathas in the west, smaller kingdoms in the south – expropriated 50-75 per cent of the
peasant’s output. Extracting land revenue was the primary task of pre-modern
bureaucracies. The colonial state continued, in the early decades, similar taxation methods
and rates as the pre-colonial states. In fact, till the late 19th century, the primary objective of
the​ ​colonial​ ​state​ ​was​ ​to​ ​extract​ ​land​ ​revenue;​ ​everything​ ​else​ ​was​ ​secondary.
Over time, with the rise of the trading economy, the significance of land revenue declined. It
provided 60 per cent of all revenues in 1840, but less than a quarter in 1920. The land tax
burden on the producer also fell – from a revenue rate of 90 per cent of rent in the early
years of the Permanent Settlement to less than 20 per cent by 1920. At the same time, since
the British were ‘men of law’, a legal framework was gradually created to ‘take’ land for
new uses (transportation, mining, urbanization, public works, etc.). Its culmination was the
now​ ​notorious​ ​Land​ ​Acquisition​ ​Act​ ​of​ ​1894.

L​and was a subject of overriding importance in the independent Indian state, but the issues
were diametrically opposed. On one hand were the problems created by the colonial state –
primarily feudalism and usurious credit systems – tackled by the first, fourth, and seventeenth
amendments to the Constitution. On the other were the massive new land needs to modernize
and industrialize as rapidly as possible. As a result emerged what I have called the
‘lena-dena sarkar’, or ‘sarkar mai baap’, the Janus- or Agni-like entity that ‘gave’ or
redistributed​ ​land​ ​with​ ​one​ ​hand​ ​and​ ​‘took’​ ​or​ ​acquired​ ​land​ ​with​ ​the​ ​other.
Consider the positives first. One significant difference from the past was that agricultural
output was no longer taxed for revenue (breaking a system as old as recorded Indian
society). The zamindari system was abolished and the village moneylender was severely
curtailed. Some land redistribution took place; around six per cent of agricultural land
changed hands. Some of this came about because of tenancy reform, and a little from new
laws on landholding ceilings. Much of the redistribution, perhaps around 40 per cent of the
national total, took place under leftist governments in Kerala and West Bengal. Adivasi
lands,​ ​forest​ ​lands,​ ​and​ ​community​ ​lands​ ​were​ ​protected​ ​by​ ​restricting​ ​sales​ ​to​ ​outsiders.
The land market changed in fundamental ways because of the new laws and policies; and
because land is a state subject, different land laws and markets eventually emerged in India’s
states. In general, however, these laws had regressive or unintended effects: making land
transactions difficult and opaque, unleashing litigation and fraud and land fragmentation,
allowing landowners to push tenants around, while very little actual redistribution took
place.

I​f the ‘giving’ was tepid – and its effects, scholars now conclude, were negative on growth
and inequality – the ‘taking’ was staggering. It is doubtful that land acquisition on such scale
had been done anywhere in the 20th century other than in revolutionary communist states
that abolished private property rights in land. On this newly acquired land were installed
numerous dam and irrigation systems (like Bhakra Nangal and DVC, extending to more than
5,000 medium and large dams), industrial townships (like Durgapur, Rourkela, and Bhilai),
mines (for coal, iron ore, bauxite, etc.), and new and expanded roads, highways, train lines,
airports, and so on. The economic geography of contemporary India was created by the
acquisitions​ ​of​ ​the​ ​developmental​ ​state.
We do not have any account by the state of how much land was taken by it, or from whom, or
where. This is my summary from the work done by a dedicated and independent research
community: 50 million people were displaced, 50 million acres were taken or converted.
Somewhere around 10 per cent of the nation’s usable land was acquired or, in the case of
common property resources, converted. Ninety per cent plus were displaced by the state, for
the state; less than 10 per cent was for the private sector. This was because the really large
categories of displacement-impact were all entirely in the domain of the state – water
(meaning dam and irrigation projects) created close to two-fifth of the displacement,
transportation created close to one-sixth, welfare and administration close to one-seventh,
and​ ​environment​ ​close​ ​to​ ​one-tenth.
The most marginalized were the worst affected: A disproportionate burden of the
displacement impact fell on India’s Adivasi population; also disproportionately burdened,
but possibly not as heavily, were Dalits (who lost livelihoods more than land, which they did
not possess). Abysmal compensation, absent rehabilitation: Most land-owners were paid
little – for instance, Rs 50 to 200 per acre for the Hirakud dam project commissioned in 1957
in Odisha; as little as Rs 10,000 per acre in the 1980s and Rs 50,000 per acre into the early
2000s. Many were never paid. Livelihood losers were, as a matter of course, paid nothing;
neither were losers of common property resources. A significant majority of the affected
population​ ​was​ ​never​ ​resettled​ ​nor​ ​provided​ ​alternative​ ​livelihoods.

T​herefore, independent Indian state’s policies on land were fundamentally contradictory. It

gave (or redistributed) land with one hand, and took (or acquired) land with the other. It took
more than it gave, and the giving stopped long ago, whereas the taking intensified in recent
years. Just as important, the populations that got the development benefits of the land takings
were very different from the populations whose lands were taken. These marginalized and
other land- and livelihood-losing communities frequently faced wipeouts. Their losses
effectively subsidized India’s development or, to be more accurate, its winners – that is, the
populations that got bijli, sadak, pani, naukri. This regressive redistribution system lasted
well into the 2000s. Not a single political party was against it, very likely because the direct
winners​ ​of​ ​this​ ​system​ ​far​ ​outnumbered​ ​and​ ​were​ ​more​ ​powerful​ ​than​ ​the​ ​direct​ ​losers.

T​he developmental system began facing some resistance from civil society groups from the
mid-1980s (initially isolated, and later, after the Narmada Bachao Andolan, in a more
organized and widespread form), and reached a breaking point around 2007, partly as a
result of the SEZ Act of 2005 and partly as a result of several high profile, violent cases. The
LARR was created to replace the dying acquisition system of the developmental state. It has
five​ ​important​ ​elements:
(i) Increased compensation for farmers – market prices are doubled in urban and quadrupled
in rural areas. (ii) Expanded coverage of compensation – non-owners facing livelihood loss
are compensated. (iii) Rehabilitation and resettlement of people evicted from their lands is
made compulsory. (iv) Taking informed consent of land-losers – using referendums, but only
when the acquisition has any private sector involvement. (v) Social impact assessments to
determine a project’s impact on people’s lands and livelihoods; more specifically, to identify
all affected persons. The first three elements contribute to the direct price of acquisition
(which are also the direct benefits for land and livelihood losers); the latter two elements
contribute​ ​to​ ​the​ ​indirect​ ​price​ ​(transaction​ ​and​ ​opportunity​ ​costs).
I have written extensively about the direct cost impacts of this law. They are so large, I have
argued, that where land is needed most, that is, where land use is most likely to change – in
peri-urban India – this law will simply end acquisition. Most acquisitions – for public and
private use – will no longer be affordable. Not all of this increase will come from the new
law. A significant proportion will come from the very large increase in the price of land in all
urban​ ​and​ ​many​ ​rural​ ​areas.

T​his is very important. The price of land in India has exploded in the last decade (for reasons
that cannot be detailed here because of space limitations). It is now very likely the highest in
the world. The available evidence suggests that the current market price of remote,
low-productivity rural land is not less than Rs 5 lakh per acre anywhere in the country; less
remote and more productive land is broadly priced in the range of Rs 10-25 lakh per acre;
well-connected land (whether it is productive or not) now costs Rs 1 crore per acre in states
like Punjab and Haryana. At the urban fringe – where buildings end and fields begin – these
prices are upwards of Rs 10 crore per acre around Mumbai and Delhi and no less than two
crore​ ​per​ ​acre​ ​near​ ​any​ ​significant​ ​city.
To put these prices in context: the average price of farmland in the U.S. is Rs 1.5 lakh per
acre. The lowest prices (less than Rs 0.5 lakh per acre) are in barren states like New Mexico,
and the highest (Rs 7 lakh per acre) is in the urbanized state of New Jersey (sandwiched
between New York City and Philadelphia). Therefore, the price of farmland in India is
completely unconnected from agricultural productivity; it is 5-100 times larger. As a result,
the LARR will make direct payments that are 20-400 times larger than the earnings that
would​ ​be​ ​possible​ ​by​ ​keeping​ ​the​ ​land​ ​in​ ​agriculture​ ​in​ ​perpetuity.
Consider Singur, where the West Bengal government acquired about 1,000 acres of land for
Tata Motors to build its Nano factory in 2006. It was a giveaway to Tata, but let us look
beyond that. The state government paid about Rs 10 lakh per acre, which was Rs 2 to 3 lakh
less than the market price for a portion of the land. Mamata Banerjee used this as a wedge to
drive Tata out to Sanand in Gujarat (and later the CPM from Bengal). In Sanand, the state
led by Narendra Modi provided a package of government owned and acquired land (at
around Rs 50 lakh per acre). Today, Sanand is an emerging automobile hub and Singur a
desolate​ ​landscape​ ​of​ ​desperate​ ​farmers.

I​f the same Singur acquisition is attempted with LARR rules now, the landowners will be
paid in excess of Rs 50 lakh per acre. The additional costs for landless workers and
resettlement and rehabilitation will total another Rs 35 lakh per acre. Added to this Rs 85
lakh per acre (50+ times the price in the U.S.) will be the cost of waiting for 4 to 5 years to
complete the acquisition process. Will the Singur landowners reject this windfall? It seems
irrational and unlikely, but what if they do? What will a project promoter do when it fails to
get​ ​the​ ​land​ ​even​ ​after​ ​4​ ​to​ ​5​ ​years?​ ​What​ ​will​ ​be​ ​the​ ​cost​ ​of​ ​waiting,​ ​and​ ​who​ ​will​ ​pay?
These are the questions that surely drove the BJP’s aborted amendment to LARR. Their
amendment removed the ‘informed consent’ and ‘social impact assessment’ requirements for
a range of projects, including those relating to defence and national security, rural
infrastructure, affordable housing, industrial corridors, and infrastructure (where
government retains landownership). These changes would probably have reduced the
acquisition time for these project types by several years and thereby significantly lowered the
indirect​ ​costs​ ​of​ ​acquisition.
It is likely that the BJP took this approach in the belief that landowners would not refuse
their windfalls, especially in peri-urban regions, which is where most future acquisition will
take place. Therefore, they implicitly argued against raising the opportunity cost for everyone
by making private promoters wait. They must have been aware, as must other political
parties, of the condition of Indian agriculture revealed again in the NSSO’s 70th round on
agriculture (covering 2012-3): that average monthly income (from farm and non-farm
activities combined) for farming households was less than Rs 6,500; that over 75 per cent of
farming households earned even less than this average; that in states like Bihar and West
Bengal this average was below Rs 4,000. These findings were confirmed in the just released
Socio Economic and Caste Census of 2011: in almost 75 per cent of rural households, the
monthly income of the highest earning member was less than Rs 5,000; this condition existed
for over 83 and 86 per cent of Dalit and Adivasi households respectively. 30 per cent of rural
households were landless; they and another 20 per cent of rural households derived their
primary​ ​income​ ​from​ ​manual​ ​casual​ ​labour.

W​e know this already, but need to be reminded: Farming doesn’t pay, mainly because there
is too little land per household (less than 3 acres average in India vs. hundreds in Europe
and the Americas). It is the root cause of poverty in India. Therefore, if farmers do refuse
payouts that are dozens to hundreds of times more than they earn from farming – as the
opposition argues they would or could – one has to conclude that there are significant
information asymmetries at work: farmers are not well informed about what they stand to
gain; or they are fearful of their inability to handle so much money (and so much change,
especially inter-generational change); or they are afraid that middlemen – politicians and
their​ ​agents​ ​–​ ​will​ ​make​ ​the​ ​real​ ​gains.

T​his fear of the middleman is well justified. Indian politics today is a rent-seeking system
where the biggest source of rent is land. At the ground level, the political system is choked
with ‘leaders’ whose special skill is to extract value from land – typically through insider
information and muscle power when the use changes from agriculture to something else. The
rise of what has been called the ‘real estate politician’ is visible everywhere – from state
assemblies to the Lok Sabha. Real estate is the name of the game in every city and almost
every district, as land has more than quintupled in value in the last decade. It is India’s most
scarce resource – ‘they ain’t making any more of the stuff’ – and its brokers are the arbiters
of​ ​local​ ​power.
It is necessary to understand, however, that the nature of the political rent is dependent on
scale. At the local scale – the domain of the small actor like Robert Vadra or Nitin Gadkari
(when he was just a Maharashtra politician) – the rent is money and is derived from the land
itself. At the regional or national scale, however, land is the source of another kind of rent –
of political significance, the kind sought by Mamata ‘Ma, Mati, Manush’ Banerjee and Rahul
‘Sipahi​ ​for​ ​the​ ​Dongria​ ​Kondh’​ ​Gandhi​ ​and​ ​Narendra​ ​‘Vikas​ ​Purush’​ ​Modi.
This is why, after six decades of indifference from all political parties, land acquisition has
become the ‘biggest problem’ in Indian development. The core reason, I argue, is the rise of
political competition and ‘wedge-issue’ politics. In general, the higher the level of political
competition or political fragmentation, the more likely is the use of wedge issue political
strategies that ostensibly favour only minorities. In the last decade, resistance to land
acquisition became a viable political option for all political parties, especially those
attempting to make a mark in spaces dominated by other parties, and created a condition that
seems counter-intuitive – political agitations that favour the rights of groups too small to win
elections.
Therefore, Mamata Banerjee promises that nothing will change on anyone’s land, and the
farmer is safe with her. Rahul Gandhi promises that he will give the poor farmer and the
Adivasi a voice, and therefore, justice. Narendra Modi promises the peri-urban farmer a lot
of money, very quickly, and development, so that he can become part of the new glittering
India. At the heart of all of their narratives of leadership is a relationship to the ‘Indian
farmer’. And the way to the farmer’s heart is through his land. Therefore, land law has
become a tool to extract the greatest rent of all – great power; whereas the land market has
become the principal device to extract local rents – money and power in a pas de deux of
corruption.

O​ne result is the absurd debate on ‘consent’ in land acquisition: Narendra Modi will
eliminate it, we are told, but Rahul Gandhi created and will retain it. Why is it absurd?
Because the ‘consent’ clause in LARR does not apply to the public sector, which used over 90
per cent of acquired land in the past, and will likely use a smaller portion but still a vast
majority of the acquired land in the future. It is almost a meaningless clause, and the fight
over​ ​it​ ​is​ ​simply​ ​hypocritical.
Another result is the myth that all agricultural land is the same, and therefore a single,
national law is appropriate everywhere. The fact is, even at independence there was so much
land variation in the country that land was made a state subject. In the seven decades since,
that variation has increased substantially. Agricultural receipts per household are tenfold
higher from the most to the least productive state; average landholding size is twentyfold
higher from the most abundant to the most constrained state; and the price of agricultural
land​ ​possibly​ ​ranges​ ​between​ ​Rs​ ​5​ ​lakh​ ​and​ ​10​ ​crore​ ​per​ ​acre,​ ​a​ ​200-fold​ ​difference.

A fundamental reason for the absurdities and myths to persist is the lack of information on
land. That is what led to the bad law of LARR, and the BJP’s bad amendment. Neither is bad
in toto, but relevant only to limited parts of the country – the Congress version in deep rural
regions, the BJP version in peri-urban India. Therefore, whatever law finally emerges –
though the BJP amendment has failed, we have not heard the last of it – it will not last five
years; another law will be needed. That law should be based on good information: on
‘nominal’ land prices, the identities of the buyers and sellers and affected parcels, and the
details of every acquisition (specific location and specific compensation). It is necessary to
collect and disseminate this information widely: on-line, in every tehsildar’s office, and
copies sent to panchayats and gram sabhas. Good information should begin to blow the lid
off the septic tank of local corruption and land mafias and, one can only hope, the myths
propagated​ ​by​ ​‘big​ ​leaders’​ ​burnishing​ ​their​ ​brands.
India has to urbanize. Some land use has to change. It is essential to have a good law to
enable this critical and inevitable rural-urban transition. That good law is one that will
deliver land for growth, justice for the displaced, and just as important, rein in the
ever-enlarging​ ​rent-seeking​ ​state.
* Some of the ideas and data in this essay originally appeared in my book, The Price of
Land:​ ​Acquisition,​ ​Conflict,​ ​Consequence.​ ​Oxford​ ​University​ ​Press,​ ​Delhi,​ ​2013.