Make policy, not pious intent

Make policy, not pious intent

Unmindful of the growing chorus of voices that quite correctly questions its right to dictate terms to an elected government, the National Advisory Council (NAC) headed by Sonia Gandhi has come up with yet another of its proposals that seem good on paper, but will eventually harm national progress.

The issue this time is land acquisition. The NAC has proposed a seven-point test that is to help the government prepare new legislation of land acquisition and rehabilitation of those who have given up their land to industrial and public projects. This test is made up of delightfully vague parameters. For example, does the rehabilitation package minimize adverse impacts on people, habitats, environment and biodiversity? Or: Is it sensitive to the aspirations, culture, community, natural resource base and skill base of the affected people? How are these to be measured and who will implement this checklist? Notice: These appear to be general rules, but will actually mean case-by-case clearance for each project. Land acquisition will be impossible if such vacuous checklists are written into policy.

Land is clearly a sensitive issue in India. This newspaper has routinely criticized the use of a colonial-era law and the misuse of the eminent domain powers of the government to force farmers to give up their land for industry. Yet the eventual transfer of land use from agriculture to industry and the spread of cities are both inevitable and painful. Forceful displacement is no solution. The answer lies in a more robust market for land. The Haryana model—with purchase of land at market prices and a system of 33-year annuities for those who have sold out—is one clear solution.

The intellectual underpinnings of such a policy can be found in the Coase Theorem, based on the brilliant 1960 paper, “The Problem of Social Cost", written by Ronald Coase who won the 1991 Nobel Prize in economics. One variant of the Coase Theorem can be stated as follows: As long as property rights are well defined and transaction costs are zero, voluntary exchange will lead to the best and most fair use of resources. The basic insight holds even when transaction costs are not zero.

Farmer agitations across the country have shown us that pushing people off their land is no way to acquire land for industry. The most sensible solution is to offer farmers market prices for their land and offer them a share in future cash flows from that land through annuities (or some similar option). A land market also has the added advantage of offering farmers a way out of farm work, in case it makes economic sense to them. The NAC checklist will ensure that a government authority rather than the farmers will decide whether to sell or not.

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