Most farm plots are tiny and unprofitable.

Photographer: Noah Seelam/AFP/Getty Images

A Deal India's Farmers Can't Refuse

Dhiraj Nayyar is a journalist in New Delhi. Trained as an economist, he has worked at the Financial Express, India Today and Firstpost.com. He is editor of "Surviving the Storm: India and the Global Financial Crisis."
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Indian Prime Minister Narendra Modi has a fight on his hands. A newly rejuvenated opposition has joined with populist crusader Anna Hazare -- the man who brought the previous government to its knees over the issue of corruption -- and is blocking proposed changes to a draconian land-acquisition law. Modi has few appetizing choices. He could keep the measures going by executive order for another six months (the first such ordinance expires on April 4). But few companies are likely to invest based on such flimsy reassurances.

Or, if he's in the mood for a scrap, Modi could call a joint session of both houses of Parliament and use his overall majority to ram through the bill. That would fuel charges that the government is anti-poor, though, and would alienate much of the 50 percent of India's population that depends on farming for a living.

QuickTake India's Aspirations

Here's a third idea: Instead of amending the current law, why not ask Parliament to repeal it entirely? Let land be bought and sold openly and transparently. There's a reason governments get involved with land acquisition -- so that holdouts can't unreasonably stall important projects by demanding exorbitant prices or simply refusing to sell. But there's no reason the central government has to take the lead role in resolving those cases. Instead, each of India's 30 states could define its own eminent-domain rules, with those interested in development competing to make their regulations more efficient and attractive to industry.

The existing law, passed by the previous government in 2013, makes the process of acquiring land for industrial projects unnecessarily expensive and time-consuming. Companies interested in a block of land have to obtain the consent of at least 70 percent of landowners and wait for bureaucrats to conduct a social impact assessment. They must also pay quadruple the market price in rural areas and double in urban areas. Modi's trying to lift the first two conditions for projects that involve national security and defense, rural infrastructure (including electricity), industrial corridors, public-private partnership projects (where the ownership of land vests with the government) and affordable housing for the poor. That would help unblock at least some of the estimated $400 billion worth of projects that are stuck waiting for clearances.

The only really troublesome aspect of the proposed amendments is the elimination of any need to obtain consent from landholders. In fact, there should almost always be a reasonable, market-determined price at which owners are willing to sell. The idea that farmers want to cling to their land at any cost is silly. Most plots are too small to farm at scale and profit. The half of India’s workforce employed in agriculture produces just 15 percent of gross domestic product.

What farmers really need is the ability to sell to the highest bidder; currently, fertile farmland can only be sold for agricultural purposes. Even more importantly, they need clear title to their land. Under current law, sale deeds aren't enough to guarantee title; only a chain of documents linking the land to its original owner will suffice. Government landholding registers barely exist. Where they do, they are rarely updated or computerized and are essentially useless.

Without clear proof of ownership, landowners have good reason to fear being cheated out of proper compensation. Some states, including Modi’s home state of Gujarat and the southern state of Karnataka, have done a decent job of computerizing land records and clearing titles. Those examples must be replicated elsewhere.

Of course, for many farmers, land is the only asset they possess; it's hardly surprising they might be reluctant to sell without an alternative income stream. Corporations and the government can help by investing in the education and training of farmers and landless laborers in the vicinity of planned projects. In theory, the new factories going up should offer better-paying job opportunities, while new townships should offer more efficient infrastructure. The promise of a better life for themselves and greater opportunity for their children would be the best incentive for farmers to sell.

At this point, an emboldened opposition would probably seek to stymie any attempt to repeal the current law, too. But Modi's in a tight spot. He needs a less restrictive land-acquisition policy in order to revive investment and infrastructure spending, while politically, he can't afford to alienate India's poorest citizens. If he can't win this fight, maybe he should at least try to shift the battleground. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Dhiraj Nayyar at dhiraj.nayyar@gmail.com

To contact the editor on this story:
Nisid Hajari at nhajari@bloomberg.net