Model law liberalizing farmland leasing gains traction among states

The model law secures landowners rights while allowing tenant farmers access facilities like insurance and credit


Madhya Pradesh became the first state in July to draft its own law, and several others are following its example. Photo: Mint
Madhya Pradesh became the first state in July to draft its own law, and several others are following its example. Photo: Mint

New Delhi: Several states, including Gujarat, Odisha and Punjab, are adopting a model law that is aimed at encouraging owners of agricultural land to lease out their land for farming.

The model act, drafted by an expert panel under the Niti Aayog, was proposed by the centre in April. It secures the rights of landowners while allowing tenant farmers access to facilities like insurance, credit and compensation for crop damage.

Madhya Pradesh became the first state in July to draft its own law, and several others are following its example.

“While Madhya Pradesh passed a new law on the lines suggested by us, Uttar Pradesh has partially liberalised its land leasing laws and states like Gujarat, Odisha and Punjab are likely to take our suggestions forward in the coming months,” said T. Haque, who headed the NITI Aayog expert committee which mooted the new law.

The idea behind the law is to allow owners to lease out agricultural land to tenant farmers without any fear of losing it.

This would allow unused land to be used productively, and enable tenant farmers to invest in the land and access credit and insurance.

According to Haque, about 20% of land holdings are managed by tenant farmers, with the figure in states like Andhra Pradesh going up to 60%.

Currently, states impose varying degrees of restrictions on leasing of farm land.

While Kerala prohibits leasing altogether, states such as Bihar allow leasing by certain categories of landowners—those who are disabled, widows or are in the armed forces, for instance.

In Punjab, Haryana, Gujarat and Maharashtra, tenants have the right to purchase land from the owner after a period of tenancy—a rule that discourages leasing or prompts owners to frequently change tenants.

“Following our suggestions, Uttar Pradesh is now allowing farmland owned by anyone to be leased to tenant farmers compared to only disabled owners who were allowed to lease land earlier,” Haque said, adding, Odisha could pass its new law as early as next month.

The contours of the new law enacted by Madhya Pradesh shows how states are preparing to reform the agriculture sector in the backdrop of present day realities. For instance, according to the Madhya Pradesh Bhumiswami Evang Bataidar Ki Hiton Ka Sanrakshan bill, 2016—it means protection of the rights of landlords and tenants—owners can lease out their farms for a period of up to five years on a mutually-agreed rent. The bill gives no rights to tenant over the land and disputes are kept outside the jurisdiction of courts.

“This implies landowners can give their land without any fear of protracted court cases. Also, the tenant can avail of crop loans but without mortgaging the land,” said K.K. Khare, principal revenue commissioner of Madhya Pradesh.

“In our state, nearly 40-50% agricultural land is under tenant farmers but earlier, they had no rights or facilities,” Khare said, adding, “the new law will allow consolidation of farm land so that small plots of land that are economically unviable can be leased out.”

Consolidation of farmland would also lead to better mechanisation, according to Khare. For instance, using tractors and farm equipment is not economically viable for small plots of 2-3 acres.

“Large operational holdings will reduce the cost of cultivation and increase profitability of farming,” Khare said.

He added that under the new law, land can also be leased out for allied activities like livestock or animal husbandry for a maximum period of five years.

Also, there will be no ceiling on the amount of land that can be leased out or consolidated as the state wants market forces to determine the size of operational holdings.

According to the draft law and report presented to the Niti Aayog in April, current restrictions on land leasing have reduced the occupational mobility of landowners who want to take up employment outside agriculture but are forced to stick to their land due to the fear of losing it.

“The restrictive tenancy laws have proved to be anti-growth and anti-poor,” the report said. The report also said bans or restrictions on land leasing have led to ‘concealed tenancy’—where agreements between landowner and tenant are informal or tenancy agreements are not recorded—due to which tenant farmers do not have any incentive to invest in land improvement.

Land leasing laws framed in the wake of Independence have lost their relevance today, it added.

“Lease farming is an economic necessity and not a symbol of feudalism, as it was thought before,” the report said, adding, “the growth of an active land lease market would be helpful for the rural poor to get out of the poverty trap.”

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