Poverty Elimination & Agriculture Reforms

Poverty Elimination

     Instead of periodic but endless efforts to define poverty, we should for the next 10-15 years adopt the globally accepted definitions of comparative poverty defined by the World Banks in terms of purchasing power parity, of $1.25 and $2 per person per day. The question of inter-state allocation for Centrally Sponsored schemes that remain should be addressed by use of Per Capita State GDP (as is done by Finance Commission).

Financial re-allocation

   1.       Calculations done by us using NSS 1999 data and by Surjit Bhalla using NSS 2004 and 2009 data showed that Indian poverty can be eliminated if the money spent on Poverty Alleviation was re-directed to cash transfers.[i]   NITI Ayog should redo these calculations using the 2011 NSS data and corresponding expenditures for 2011.  
     Based on studies done earlier, on asset based indicators for identifying the poor it should settle/agree on a system for identifying them. 

  To avoid controversies related to poverty line, calculate transfers needed to bring all below Rs x per capita to x using 2011. Add reasonable administrative cost (e.g. 10%) for identifying-locating them and delivering cash directly to them => Calculate Rs. Y per capita achievable.

    We must be clear that many of these will be land-less labor and marginal farmers in rural areas who get a substantial part of their income from agriculture, so that the issue of agricultural-rural poverty is addressed head-on instead of futilely through agriculture programs.

Cash Delivery System

   2.          Find the most effective & efficient delivery method (with UID/Aadhar) for delivering cash: Bank account, RuPay Debit/Credit card or Mobile (payment & use system), or combination of three depending on geographical location & characteristics (urban, rural, hilly, remote). Restrict ration shops to areas where there is none or few private outlets for cereals (i.e, a local retail monopoly).

Quality of Life: Public Goods

   3.          Identify a set of Social “Public Goods” or “Quasi public” goods & services (P&QP G&S)  that are critical for the bottom 40% of the population. Experience & analysis suggests that Sewage and sanitation systems complete chain), clean drinking water, village road side drainage, communicable & vector borne disease, Basic education (3Rs) and basic job skills (low to middle), public health education (germs, nutrition) are the most important ones for the lower half of the population. NITI Ayog should make detailed policy plans and training program (training the trainers) for achieving these goals and propagate to States, Nagarpalikas, Panchayats and public. Identify and disseminate (media, web sites et all) successful models for achieving each Public good.

Two key CG programs can be very helpful if redirected/developed in this direction:

Swach Bharat

   Should incorporate development of Sewerage, Drainage  & Sanitation systems & protocols for all villages and census towns of India. It should also include public health education relating spread of disease through germs and basic nutrition information.

Skill India

    The skill India mission can play an important role in standardization and certification of low to middle skills that are critical for the masses of rural youth and to training of trainers by the government.  It is important to give sufficient attention to skills that are relevant to the rural economy and to agriculture, including those skills related to the introduction of modern technology relevant to them.

Education & Health

   4.      The poor and less advantaged suffer the most from inferior quality of public & private education in rural areas. In India there is the additional problem of high absenteeism among (State) Government teachers, nurses and doctors posted in rural areas.  New ICT technologies provide a way to leap frog the historical evolution of educational improvement in the World’s rural areas, and bypass the problem of poor governance (absenteeism & inability to regulate quality): Make e-education/e-learning and e-health/e-medicine a key part of the Central Governments education and health effort, leaving “Brick and Mortar” approaches to States (who have the administrative set up to supply social services and whose responsibility it is to do so).

Digital India, E-governance

   These two CG missions can play a critical role in opening up rural areas to the modern world and in providing access to information and knowledge that was traditionally available only in urban agglomerations 

Agriculture 

    As a an overwhelming majority of poor live in rural areas or are recent migrants to urban areas from rural, agriculture and rural development is a significant element of poverty elimination, particularly in the Eastern States (or parts of States) with sufficient surface water for crops (eg. W Bengal, Jharkhand, Orissa, Chattisgarh, Bihar, C & E UP), but which need better systems of irrigation and drainage.[ii]

Reform Goals

   Governance systems relating to Agriculture, Irrigation (which are primarily at State level given it is a State subject) have deteriorated badly, with associated increase in leakages and corruption. The capacity of State governments to undertake prijects and programs is limited. Reforms must focus on removing the jungle of controls on farmers and on agriculture.

G1: This requires de-control all aspects of agriculture, rural infrastructure and services to allow competition.

G2: More imaginative use of Public-Private co-operation (PPC) to increase agricultural productivity & reduce income volatility, create supply chains, develop new markets and provide weather insurance. The Private sector’s desire to sell to rural markets and their interest in increasing size of that market, should be channeled into PPC.

G3: The government should focus more on planning & providing classic “public” goods and “quasi public goods(infrastructure externalities). A modernized version of “Agro-climatic zones” needs revival as basis for Government development planning. A modernized version would take account of issues like Ground water depletion (zones-red, orange, yellow, green) and effect of Climate change on volatility of weather (low, moderate, high).

Policy

   1.      Exim-Policy: Follow the successful model of moving from QRs to Tariffs and export duties, and then gradually lowering them. For a few agricultural commodities an variable/adjustable and transparent system of Tariffs and/or duties could be adopted, based on medium term trends in international and domestic prices.

   2.      Essential Commodities Act (ECA): Narrow in terms of crops (none on perishables) & restrict usage to very precisely defined conditions (e.g. in terms of acceleration in prices).

   3.      Agricultural Produce Marketing Act (APMA): De-license setting up of competitive markets (including E-markets). Help land acquisition for this purpose. De-control direct purchase of produce from farmers by publicly listed Agro-processing Companies (w/o going through agro market).

   4.      Land Policy: Remove all controls on private sale, purchase, leasing, mortgaging, renting in or out of land (except reserved forests & carefully defined tribal areas). Reduce stamp duties for registering tenanancy and mortgages. Identify & notify areas where large scale corporate farming will be freely allowed-decontrolled (e.g. Degraded, Fallow, water logged areas) 

   5.      Unsustainable levels of Central Minimum Support prices (MSP) and State advised Prices (SAP) that are even higher than MSP, have resulted in Indian inflation rates exceeding those across the World, instead of enhancing productivity or income security. Dis continue SAP & MSP and de-control cane prices and sugar industry so that farmers get competitive prices. Help provide self-insurance by diversification into livestock, fisheries and farm forestry. Partner with private insurers providing weather insurance.

    6.      Allow 100% FDI in Food retail, agricultural/weather insurance & rural banking and rural health insurance.

   7.      Subsidy: Replace incentive for soil destroying/polluting subsidies for fertilizer use by a combination of fertilizer & seed purchase linked cash (a la LPG), Insurance (income support) & subsidy for adoption of new technology/technology up-gradation to enhance land, water, energy productivity. Over time the first element could be replaced completely by the other two. De-control import and production of fertilizer and all inputs into fertilizer production.

   8.      Water Policy: Water use efficiency in China is two times that in India. Ground water is being rapidly depleted in many areas (Punjab, Haryana, Maharashtra). In these areas we need a depletion tax to be imposed (beyond a free allowance for every resident). This would be offset by a subsidy for adoption of technology for efficient water use (eg drip irrigation).

   9.      Productivity: Professional independent regulator for introduction of new crop varieties including GM crops. Expedite GM crop trials. Strengthen Central agricultural research institutions and encourage agro-industrial corporations to do co-operative research ad dissemination.

  10.  Completely de-control private, de-centralized, unconventional power supply networks for difficult/remote/hilly/tribal areas and regulated decontrol for other rural areas. Provide the same Govt. support for such systems as is done for conventional generation, transmission & distribution systems.

Expenditures, Programs, Projects

Some of the programs that Central government can and should focus on are,

 
    1.      Information: Telecom/Broadband (open access to wires; publicly funded fibre network), E-governance centers as hubs for Agro-climatic information (Rainfed, Ground water depleting, soil conditions/analysis), best Practices and Market information.

    2.      Knowledge/Technology: Agro technology (GM seeds, R&D, TOT/Extension) Farm management (water, soil, sowing,..).

   3.      Weather/Crop Damage Insurance, Human & health insurance. Technical development & Govt. co-insurance in high premium conditions.

    4.      Technical/Professional Services: Train the trainers/suppliers of all Agricultural, Animal husbandry, fishery & other services (including farm management consultants).

   5.      Road network as Development Drivers. State highways as (better) planned hubs of integrated rural, semi-urban development.  

    6.      Railway stations: Develop as Agro-processing/Information/commercial hubs in rural, semi-urban areas

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[i]  Arvind Virmani, “Poverty And Hunger In India: What is needed To Eliminate Them,” Working Paper No. 1/2006-PC, Planning Commission, February 2006. http://planningcommission.nic.in/reports/wrkpapers/rpwpf.htm.

[ii] Arvind Virmani, “The Sudoku of Growth, Poverty and Malnutrition: Lessons For Lagging States,” Working Paper No. 2/2007-PC, Planning Commission, July  2007. http://planningcommission.nic.in/reports/wrkpapers/rpwpf.htm .

A New Union Land Law

Introduction

       A lot of confusion has been created during the discussion of the Land acquisition law and its amendment. This note tries to clear the confusion by identifying key issues in the form of principles needed to create a competitive land market and fair and equitable compulsory acquisition.

Principle 1: Free Land Markets

             The sale, purchase, leasing in or out or renting of land between two or more private parties (owner of land or buyer, lessee, renter) shall not be controlled/restricted by Government.  Land is the primary asset that a farmer owns (besides animals & some equipment), and controls & restrictions reduce its value. State Governments should amend/abolish all laws & rules that restrict the right of private parties to freely enter into legal contracts relating to land (except those relating to “forests” and “tribal areas”). They can however require a registration process for all such contracts, ideally through a digital registration system cum e-governance portal set up for this purpose.[i]

Principle 2: Urban Areas & Land Use

     The State Governments have (& will retain) the right to notify Urban Municipal Boundaries and to specify “land use” within these boundaries as part of municipal planning & development.  All extension of municipal boundaries and specification of land use must be done through a transparent public process that provides information, on proposed extension of urban boundaries and/or proposed “land use” changes, to all affected parties. Once the land use change has been notified, owners of land will have the rights specified in P1, limited only by such legally specified & promulgated “land use” restrictions.

     “Land use” as commonly understood applies only to private use of land, but effective and efficient land use planning requires that use of land for physical and social infrastructure be defined. Efficient and early definition of areas for this purpose can eliminate a lot of heartburn and corruption.

Principle 3: PURA

     Outside these “urban” boundaries (P2), there should be no restriction on “land use.” However, as the extension of urban facilities to village may require some “land use” planning, a limited provision could be kept for specifying land use for village infrastructure (roads, sewers, drains) only, within village boundaries and for sewage  disposal outside it.

Principle 4: Auction of Land

     All government owned land must only be sold through a process of transparent auctions and only after the “land use” has been defined and notified under P2. Govt. can freely enter land market as a private party and purchase land from private parties, but the conditions under P1 and P2 will apply equally to the Government when it acts as a “private” purchaser.

Principle 5: Compulsory Acquisition

      Government can compulsorily acquire land (or land use rights) for, “location specific”, “public goods” and “public goods infrastructure”.  These terms must be defined carefully taking full cognizance of their economic definition and meaning.  These include Dams, Ports, Airports, Highways, roads, rail & subway/metro lines, electricity transmission & distribution lines, land lines for broadband, sewers, drains & water pipes. 

    While planning for land acquisition for such public goods infrastructure, the starting point must be “land reconstitution”, with or without “land pooling” depending on the nature of the project and its location. Thus building a new highway requires acquisition of a belt which may be 10 meters wide (say). “Land reconstitution” would mean lands owners up to 1000 meters from the center line loose 1 meter for every 100 meters they own instead of one farmer in the middle losing all 10 meters. If the land is of uniform quality, it would just mean pushing back the boundary of each plot a little further away from the center line, if quality of land varies a lot, it would require “land pooling” before “reconstitution”.  By sharing both the costs and the benefits of the highway, all become net gainers, with no need for additional compensation above market price (which will in any case rise after the highway is ready).

 

     A compulsory land acquisition law must contain only the obligations of the acquiring government towards the owners of the land, including any legal-contractual obligations they have viz that land. It must neither duplicate environmental and other laws, nor be used as a tool for meeting Govts’ welfare commitments (subject to the exception given in P6).

Principle 6: Dams and Mines

       If compulsory acquisition results in destruction of a number of villages above a specified total population, through submergence (e.g. for large dams) or excavation (eg. open cast mines), a social relocation plan must be prepared by the government and approved by a majority of people in the affected villages. As the people who gain from the acquisition (dam, mine etc) do not get to vote, the only objective of the approval is to ensure that the social plan is good enough to satisfy a majority of the negatively affected population.

Principle 7: New Cities & Industrial Estates

     The lack of land records and clear definition of titles to land in India, makes it difficult to build new cities and large industrial estates in areas that were previously non-urban, and which therefore require comprehensive planning of urban infrastructure and transport. The construction of such public good infrastructure according to the approved plan is always “location specific”, even though there is a greater flexibility in locating social infrastructure (schools, medical facilities, police stations, etc). There is therefore a dilemma; parts of the land come under the definitions given in P5, but other parts don’t.  

     The ideal market approach would be to plan the new town/city and declare the new pattern of land use, including the precise location of physical and (perhaps) social infrastructure. Thereafter, Principle 5 would apply to compulsory acquisition of land for location specific public goods and Principles 1 & 2 to all other land, in the newly designated town/city or industrial estate. The former set of land owners will loose, while all the rest will gain enormously and will need to be taxed to compensate the former. A fair compensation to the former would be the “market value” of the land next to the infrastructure, post-declaration on new “land use”, plus a premium of 25% to 50% for the inconvenience of having to shift location to this newly purchased land. Note that such a “competitive market value” can only emerge if principles P1, P2 & P5 are enshrined in law.

       For a new town/city, this procedure requires a high level of competence and speed on the part of State Urban Planning departments. This problem could be solved by Govt carving out the areas for the new town/city and contracting out the detailed planning to private parties. Once this is done the new land use patterns would be notified, after which the procedure would work as in P1 to P5 above.

Conclusion

     Principle 1 is the foundation on which the entire edifice of an efficient land market and equitable land acquisition procedures rests. The “Land Acquisition law” builds another layer of bureaucratic rules and procedures on top of pre-existing State and Central controls on land markets, thus adding to the jungle of controls. We need to reverse the process by first eliminating the jungle of controls on land markets and building a fair and equitable “land acquisition law” on top of a free markets for land.

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[i] The Land acquisition law puts another bureaucratic structure called a social impact statement even on land sales between private parties. Though ostensibly applicable above a certain threshold, experience shows that it will introduce additional red tape and delays in all land transaction and multiply the already high levels of government corruption.