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The political economy of land acquisition for industry: Political reality vs economic prudence

In Singur, returning the already built land to a cultivable form in a matter of twelve weeks involves humongous expenses. Photograph: (WION)

WION Surrey, United Kingdom Sep 19, 2016, 07.02 AM (IST) Sourav Bhattacharya

At the end of August, newspapers in India announced in unusually large headlines that the Apex Court had struck down the acquisition of 997 acres of land in Singur by the Left Front government for Tata Motors. The farmers are to get back their land in its pristine, cultivable form, and they can keep their compensation as well. 

While the ruling Trinamool party celebrated, news of a more significant nature cropped up in much smaller fonts. The very next day, farmers in Alisha village in Burdwan demanded back their 10.5 acres of land earmarked for a proposed mishti (confectionery) hub – they were confident their didi, the chief minister would listen to their plea – and she did accede to their demands the same day. Last Tuesday, farmers in Raghunathpur in Purulia organised a rally asking for their land which had also been acquired by the Left Front government for an industrial park that has failed to take off.

In a twist of irony, the legal vindication of the very stand that propelled Trinamool to power in the state presents them with an economic problem on a massive scale. The current government is now responsible for cleaning up the act of the previous. Returning the already built land to a cultivable form in a matter of twelve weeks involves humongous expenses. The government is now open to lawsuits from Tata Motors as the MOU had explicitly guaranteed them indemnity against losses in case the land acquisition were to be nullified by a court of law. 

On September 17, TATA Motors has demanded from the chief minister of West Bengal a compensation amounting to around Rs 154 crore that they have paid to the erstwhile Left Front regime while buying land for its Nano car project.

The SC verdict has already triggered demands elsewhere in the state for the return of land acquired by the Left Front, and the Trinamool cannot change its stand overnight. The victory, while symbolic, is rather ominous in what it portends for the economic health of the state of West Bengal.

Whatever be the rhetoric being bandied around in Kolkata circles, it is clear to all that the state needs industry: a near-constant supply of agricultural land cannot feed the ever-growing population. Moreover, the reality is that the government does not have the financial capital, technical knowledge, or the organisational ability to launch large-scale development projects, making it necessary to seek private investment in industry. However, while the imperative is clear, what makes land acquisition difficult is the complex interplay of economic calculations and political compulsions, often at odds with each other. 

Any change creates its winners and losers. The economic calculation involves estimating whether the overall benefit to the community is larger than the overall loss. Although it sounds simple in theory, there are several difficulties along the way. While those adversely affected (landowning farmers, sharecroppers and landless labourers) are visible, the potential beneficiaries are hard to identify, precisely because the benefits are as yet hypothetical. Similarly, it is very hard to estimate the magnitudes of the losses and benefits. Again, the benefits are harder to measure since a large portion arises indirectly out of the general economic expansion which extends well into the future. Moreover, the corporates are almost expected to oversell the benefits, but the farmers about to lose their land and livelihood are justifiably defensive too: all this makes both the reported gains and losses very hard to take at face value. 

As long as the total benefit is larger than the total loss, economic logic dictates that the surplus can always be shared in such a way as to make everybody better off. In other words, there is a range of monetary compensation acceptable to the farmers that would still make the project worthwhile for the entire community. 

In practice, however, whether and how the surplus is shared depends entirely on the relative bargaining power of the different groups in question. It is very interesting to note that a large majority of land taken over under Eminent Domain in India was owned by tribal populations, who have had very little representation in the state polity. The Singur fiasco was mostly due to the fact that the Left Front did not realise that they were also politically bankrupt by then, along with financial bankruptcy. 

Over time, the legal establishment in India has focused on just compensation and consent while considering legal challenges to land acquisition. The principle of compensation stipulates that the landowners have to be paid the market value of the land they part with. The principle, however, might lead to very inadequate compensation as it does not take into account loss of livelihood of farmers. Moreover, market value itself is a nebulous concept: the very act of earmarking agricultural land for industry increases the market value of the land by orders of magnitude. Therefore, there is a clear incentive for landowners to withhold consent and raise compensation. 

Of course, holding out against the government is impossible without strong political organisation: and it is practically impossible for impoverished local communities to self-organise. Typically, a coalition of the opposition party with activist groups and quasi-electoral left outfits have mobilised farmer groups and led the resistance to land takeover. There is virtually no such mobilisation for the beneficiaries of the project, simply because they are diffuse, invisible, unidentifiable, and do not make a compelling media story.  

While the rhetoric frames resistance as a challenge to the project itself and ultimately to the authority of the government, it is crucial for the government to interpret resistance as a demand for redistribution. The government cannot engage in a course of action more socially harmful (and often suicidal) than trying to force home the project by using coercion. The responsibility of the government is to identify projects that create a social surplus and use appropriate redistributive measures to ensure everyone in the community benefits from the development project. Such measures go beyond compensation for land: these must involve rehabilitation, providing alternative means of livelihood, retraining, obtaining employment guarantees from the corporate and so on. 

But politics creates strange bedfellows. While the affected groups mobilise in order to obtain their rightful share of the surplus from the project, the external mobilisers have very different political objectives. Almost always, their long term goals are better served by a complete shutdown of the project – the classic instance being that of the Trinamool Congress riding the Singur issue to power in the state. This is where political imperatives of the situation run in complete opposition to economic prudence.

The opponents of land acquisition accuse the government of selling out to the corporates. While it is true that many government officials do enjoy huge kickbacks, the danger of such rhetoric being hardwired in the national psyche is that it can easily become self-fulfilling. If the bargaining between the corporate and the government happens in the shadow of resistance, it only weakens the government’s ability to extract concessions. In any case, when different states in the country are desperately competing attract the same corporates, the governments are in a race to the bottom where only the corporate dictates terms.

The Trinamool is in a double bind: land acquisition is political quicksand, and the party is constrained by its past. On the other hand, the state needs industry: the average agricultural landholding cannot sustain a family for more than two generations. In fact, this is what eroded the political capital earned by the Left Front government through land reforms, and forced its desperate lunge for industrialisation. Transformation of the state economy through industry is necessary today more than ever, but those depending on land have a huge stake in the status quo. The current chief minister of West Bengal Mamata Banerjee, more than anyone else, has seen at close quarters the fall of one regime trying to manage the transformation, only time will tell what lessons she has drawn from history.   

Sourav Bhattacharya

Sourav Bhattacharya teaches economics at Royal Holloway University of London, UK.

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