Wednesday, March 25, 2015

A New Union Land Law


       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.


     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.

[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.

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