Tata’s titanium plant proposal for Tiruneveli and Tuticorin in Tamil Nadu is facing protests similar to their car project in Singur (West Bengal). The main opposition to the Rs2,500 crore project is based on apprehension about acquisition of patta land to the extent of 16,000 acres (70 sq. km) spread over 10 panchayats. In the Tata Titanium project, media reports have pointed out legal difficulties, but economic issues are far bigger than legal problems in land acquisition in the country.
Acquisition in the Indian democracy has been problematic even for public infrastructure projects. But the opposition gets more intense if the acquired land is for the private corporate sector. This opposition is not necessarily to development per se but rather to the micro-implementation of the acquisition and, more specifically, to the compensation associated. In a race to attract large projects with macro gains, the micro-implementation of the acquisition process gets murky, with states often perceived as assisting the corporate sector.
It would be naive to expect economic development without land acquisition, even though displacement has social, cultural and livelihood impacts. New economic activities replace traditional use of land, as the opportunity cost of continuing with the latter becomes too high. But, the economics of this shift is assessed purely on the basis of tangible costs, as intangible costs arising from the breaking of social and cultural ties are difficult to monetize, or even to address through policy. Economic compensation, however, can be better addressed.
In developed countries, land acquisition by governments has been done primarily to achieve environmental and social goals or to help implement land use plans. As property rights and markets are well developed, even in public interest acquisitions, the compensation for land has two components: One, direct compensation and the other, indirect. The first reflects the value of land taken, while the second subsidizes farmers whose retained land is adversely affected. New Zealand’s Public Works Act entitles private owners to be compensated for any permanent depreciation in the value of any retained land and damage to any land. Permanent depreciation in the value applies to situations where part of the land is acquired and the value of the rest of the land is reduced.
The compensation issue becomes far more difficult when the proposed development is expected to enhance the value of surrounding land. Farmers whose land gets acquired forgo potential benefits from urbanization. This loss of opportunity cost in terms of forgone benefits may far exceed the compensation in the long run. There are substantial income redistribution effects between farmers whose land has been acquired compulsorily and those who still possess their land. The presumption is that the latter can sell their land in the market at an appropriate time when urbanization reaches them. This indirect redistribution causes tension between governments and farmers. When the acquisition is not purely for public cause, tensions could mount.
Consider the case of China, which had to acquire large amounts of land for industrial use after liberalization in 1978 and its move towards export-led economic growth. Its institutional structure is very different from India—ownership of urban land is public and the rural land is owned collectively under rural communes. And municipal governments could increase the land supply by conversion of ownership from rural communes to the state. Yet, compensation was made attractive. Farmers were offered a package that included jobs in the enterprises established on the acquired land, compensation for housing and the loss of crops and belongings connected to the land and, most important, urban residency. China’s rural residents can’t migrate to the cities without a government permit, which is necessary for migrants’ access to public services such as education, health care, pension, subsidized goods, etc. The intangible benefits of non-farm jobs (the onus is on the government agency acquiring land) and city residency are very lucrative and far exceed the direct compensation package.
In India, the acquisition laws vary across different states. The Maharashtra Industrial Development Corporation has a rehabilitation and resettlement (R&R) package which includes non-monetary compensation in terms of assured employment for members of displaced families and land at concessional rates for them in the developed area. Such efforts need to be complemented by a national policy on compensation and R&R with scope for localized adjustments so that ambiguities and inequities can be avoided. A well-designed package compensating for direct and indirect losses is needed. It may not be easy to put a value to forgone benefits in the long run but a combination of monetary (equivalent to the market value of land) and non-monetary (such as job, other social benefits) compensation could help reduce resistance.
The distinction between public and private (commercial) projects must be clear to define the government’s role in the acquisition process. And in the case of large private commercial projects, it should only be to ensure that farmers who would be losing land are adequately compensated.
Piyush Tiwari is senior lecturer, University of Aberdeen Business School, Aberdeen, Scotland. Comment at email@example.com