Notes on a Draft

The issue of land acquisition has flared up yet again. Over the past month, we have seen two incidents of unrest — in Jaitapur and Greater Noida. The primary cause of the unrest can be traced to the perception that the process of land acquisition has not been fair to the farmers whose land is being acquired. Home Minister P. Chidambaram has said that the government plans to introduce a new land acquisition bill in Parliament in the next session. This is intended to facilitate better compensation and rehabilitation for farmers.

There are three main elements that need to be addressed in any land acquisition law. First, the conditions under which land may be acquired need to be specified, that is, the types of projects for which the government can use this act. Second, the law has to contain an unambiguous method to compute fair compensation. Third, it needs to lay out the process to be followed.
Currently, the Land Acquisition Act 1984 governs this process. It states that land may be acquired for public purpose such as town planning, development projects, etc. It also permits acquisition for the use of companies for the above purposes or if the work is “likely to prove useful to the public”. Thus, land can be acquired for industrial projects that can provide employment or serve other objectives that benefit the general public.

The Act specifies that the market value (plus 30 per cent) should be paid as compensation. In addition, the value of any property such as buildings, irrigation works, trees, etc, must be paid. The landholder should also be compensated for any reasonable expenses if he is compelled to change his place of residence or business. The Act expressly prohibits the intended value of land from being taken into account for computing market value. That is, if agricultural land is being acquired for commercial use, the compensation will be based on the prevailing market price for agricultural land.

The process is also laid out in the Act. It includes notification of land to be acquired, hearing of objections, final declaration and payment of compensation. All disputes are to be settled in civil courts.

There have been issues related to all three elements. The protests in Nandigram and Singur followed the application of the Act for investment by private companies. Another source of discontent arises from the fact that the value of the land usually rises due to change in its usage, and the original landowners may not benefit. The long process of providing compensation and dispute settlement has also been a problem. The government introduced a bill in 2007 to address some of these issues. That bill lapsed in 2009, and has not been reintroduced.

The 2007 bill had a narrower definition of “public purpose” for which land could be acquired. It laid down three purposes: (a) for strategic naval, military or air force purposes; (b) for public infrastructure projects; and (c) for any purpose useful to the general public if 70 per cent of the land has been purchased from willing sellers through the free market. The third case has found some criticism that any private party should use market mechanisms for its needs, and compulsory acquisition should not be used. The counterpoint is that large projects need contiguous land, and such projects should not be held up if a minority of land owners are unwilling to sell their land. Whether the threshold should be 70 per cent or higher is a call that lawmakers need to make.

For computing compensation, the 2007 bill states that market value plus 60 per cent (it was earlier 30 per cent) must be paid. The market value should be based on the prevailing price for land under the intended category. If agricultural land is acquired for commercial use, the price should be that of commercial land. It also provides for a premium to the average price paid by willing sellers if the 70-30 rule is being used.

The bill amends the process for acquisition. It requires a social impact assessment if 400 families (200 in hilly, tribal and desert areas) are displaced. Importantly, it establishes a Compensation Dispute Settlement Authority at state and national levels to adjudicate disputes. Civil courts are barred from this process, and appeals from this authority will be heard by high courts and the Supreme Court.

While several of the current problems are addressed by the 2007 bill, there is room for further clarity. For example, the compensation in case land is acquired for commercial and industrial projects will likely be higher than now. However, there is unlikely to be any significant upside if the use is for highways, railways, etc, as there is no benchmark market price. Also, the seller does not get the benefit that accrues over a period of time due to the new project in that locality.

Clearly, many issues need to be thrashed out in a new bill so that there is a balance between acquiring land for projects and providing fair compensation to the landholder.