Should Development Agencies Buy Land Directly From Farmers?
Land acquisition has always been a contentious topic in India. This is largely because when government agencies – and at times, corporations – acquire land, it is not by mutual consent. The Uttar Pradesh State Housing and Urban Planning Department, however, has decided to empower the civic development agencies and the state housing and development board to buy land directly from farmers.
For the Lucknow-Agra Expressway project, the government had planned to acquire land in a similar fashion. Land acquisition is a controversial issue in Uttar Pradesh because the price of land and the compensation are fixed, and the farmers are denied the power to set the prices for their land. The government, however, invoked the land acquisition Act, and invited objections to the acquisition process. Farmers feel the process is an eyewash because their land is acquired and handed over to housing boards and development authorities without they having any say.
Meanwhile, the Haryana Urban Development Authority (Huda) is unable to find enough land to build new sectors, because most private land is in the hands of land sharks. So, Huda will launch the 11 new sectors in the periphery of Gurgaon. The cost of land acquisition is a major barrier before the expansion of roads. The cost of land as fraction of the cost of the project has typically risen from 10-15 per cent to 40 per cent. The new law stipulates that land owners should be paid twice the price of land in urban areas and fourfold in rural areas. The government proposed these norms when it noticed that land owners were often underpaid. Why do such barriers exist throughout India?
Large-scale land acquisition is, by its nature, difficult. But this does not mean that difficulties are overwhelming. In the 19thcentury, many private railroads and roads in the United Kingdom were privately owned. This is true, to some degree, of infrastructure in many parts of the world, at many points in history. How did such entrepreneurs overcome the constraint of high transaction costs? In some cases, they acquired land from multiple owners by not explicitly mentioning the purpose. Known as “disguised purchase”, entrepreneurs used to buy land from farmers and other land owners before they publicly announced their purpose to buy land for building infrastructure or other projects. This way, they could avoid holdouts who had great bargaining power when they knew that the land in question was in high demand.
But, a more commonly used method was to set a price for multiple parcels of land. Entrepreneurs used to buy a certain parcel of land only if all parties agreed to the sale. So, there was a strong incentive for holdouts to agree to a deal, because otherwise businessmen had other parcels of land easily available. As a result of this, many private railroad owners and businessmen in the 19th century colluded with governments.
A huge transaction cost is not the sole reason why land acquisition is difficult. It is not even the most important reason. In most developing countries, especially India, there are at times many apparent owners for a single parcel of land. For example, in Indonesian archipelago, only seven per cent of the land has a clear owner. In Peru, the figure is 30 per cent. This is true in India, too, though clear figures are not known. This is the major reason that prevents corporations and government agencies from directly buying land from farmers. Acquisition of land by mutual consent will become easy only when the government resolves such conflicts.