from land reform to land acquisition in west …...from land reform to land acquisition in west...

From Land Reform to Land Acquisition inWest Bengal:

State Policy and Agrarian Challenges

Dilip MookherjeeBoston University

IGC Bihar Conference, PatnaJuly 21, 2013

D. Mookherjee

Land Reform and Acquisition in WB

Introduction

Key questions: what are the major determinants ofagricultural output and productivity growth in India?Determinants of changes in land inequality andlandlessness?What role has been played by state policies in this respectin the past?What kinds of new policy approaches are needed for thefuture?

D. Mookherjee


Major Policy Instruments

In the first two decades since Independence, land reformwas considered one of the main policy instruments foreconomic development in IndiaYet very little has been achieved, and it has all butdisappeared from the policy agenda nowadaysExcept for the recent focus on land acquisition policyHow do we understand the transition from (missing) landreform to (messed up) land acquisition?Role of agricultural credit and marketing policiesFocus of my talk: what can we learn from experience ofWest Bengal (drawing on a number of different studies)?

D. Mookherjee


Introduction, contd.

With regard to land, West Bengal is different from otherIndian states in many ways:

extent of land reformstate politicsrecent land acquisition fiascos

Nevertheless may be relevant to other states: what didthey miss by failing to implement similar land reforms?Land acquisition policies: what can be learned from theSingur experience?Related policy issues that affect farmers: access to credit,and marketing channels

D. Mookherjee


Presentation Outline

1. Land Reform experience2. Land Acquisition experience: lessons from Singur3. Access to credit: lessons from household surveys and policyexperiment4. Marketing constraints faced by small farmers: lessons fromhousehold surveys and policy experiment

D. Mookherjee


1. Land Reform: The Questions

What political factors determine implementation of landreforms?What were the effects of land reform on agriculturalproductivity growth?On reducing rural inequality or poverty?Other implications for local governance?

D. Mookherjee


Research Strategy (Bardhan-Mookherjee)

Household and farm surveys in a random sample of 89villages distributed through all agricultural districts of WestBengalCovering the period from late 1960s until 2003-4Household surveys include details of landholding and theirchanges over timeFarm cost of cultivation surveys from early 1980s to 1995,period of WB Green RevolutionDetailed data concerning gram panchayats (GP) andagricultural development programs implemented since late1970sLongitudinal analysis at the household/farm level

D. Mookherjee


How Much Land Reforms in West Bengal?

Large in comparison with other Indian statesBy early 1990s, 6.7% of land area distributed as land titlesfor the poor, compared with less than 1% for most otherstatesOnly state to seriously implement sharecropper registrationprogram (Operation Barga):

minimum share of tenantprotection from eviction

Mostly happened during the 1980s

D. Mookherjee


TABLE 1: LAND REFORMS IMPLEMENTED IN WEST BENGAL 1978-981978 Average 1998 Average

% land area appropriated 16.4* 15.3% land area, titles distributed 1.4 5.4% households receiving titles 4.9 14.9% land area, tenancy registration 2.4 6.1% households registered 3.1 4.4% tenants registered 43.4 51.2Average across sample villages, weighted by operational land areasSource: Block Land Records Offices for land reforms implementedIndirect household survey, for distribution of operational land and tenancy)*Only available for 34 villages

D. Mookherjee


Political Determinants of Implementation(Bardhan-Mookherjee 2010)

Surprising lack of evidence concerning greater intensity ofimplementation by Left Front vis-a-vis the Congress at thelocal level:Villages with Left-front dominated GPs did not implementmore land reform than those with GPs dominated byCongress/TMCSome evidence that political competition at the local (GPelection) level increased implementation by either party(inverse-U shape relation between Left Front GP share andland reform implementation)Consistent with view that electoral competition (rather thanparty ideology) drove both parties to implement landreforms in a similar manner

D. Mookherjee


Effects of Land Reforms on Agricultural Productivity

Traditional view amongst economists that redistributiontends to lower efficiency/productivityHowever, context of land reform is different (owing tocombination of imperfect credit markets, agency problemsin land and rural labor markets)Theoretically, thus, land reforms have the potential to raiseproductivity, esp in rice-growing areas where agencyproblems are important and economies of scale areinsignificantSo empirical evidence is needed: where the West Bengalexperience is usefulFirst describe findings concerning effects of LR onproductivity, thereafter on land inequality

D. Mookherjee


Effects of LR on Agricultural Productivity in W Bengal(Banerjee-Gertler-Ghatak 2002, Bardhan-Mookherjee2011)

Distribution of land titles had no significant effects (owingto small, infertile plots distributed)Operation Barga, on the other hand, had significantpositive effect on productivity at the farm, village anddistrict levelsDistrict level (BGG): 1% rise in registration rate associatedwith 0.4% rise in rice yields; Farm level (BM): 1% rise inland area distributed associated with .2-.4% rise in VA/acreHowever, over 2/3 of observed productivity growth owed todelivery of minikits by local governments; contribution ofOperation Barga was comparatively small

D. Mookherjee


Effects of LR on Land Inequality and Landlessness inWest Bengal (Bardhan-Mookherjee-Luca-Pino 2011)

To what extent did the land reforms lower inequality andpoverty?Assess using measures of inequality in ownership ofagricultural landConstructed from household survey of landholdingsFind massive changes in the land distribution over1967-2004

D. Mookherjee


Agricultural land per household 1967-2004.35

.35

.35.4

.4

.4.45

.45

.45.5

.5

.5.55

.55

.55share of landless households

shar

e of

land

less

hou

seho

lds

share of landless households0

0

01

1

12

2

23

3

34

4

4agricultural land in acres

agric

ultu

ral l

and

in a

cres

agricultural land in acres1970

1970

19701975

1975

19751980

1980

19801985

1985

19851990

1990

19901995

1995

19952000

2000

2000year

year

yearAverage

Average

Average50th percentile

50th percentile

50th percentile75th percentile

75th percentile

75th percentile% of landless

% of landless

% of landlessfull sample

full sample

full sample.35

.35

.35.4

.4

.4.45

.45

.45.5

.5

.5.55

.55

.55share of landless households

shar

e of

land

less

hou

seho

lds

share of landless households0

0

01

1

12

2

23

3

34

4

4agricultural land in acres

agric

ultu

ral l

and

in a

cres

agricultural land in acres1970

1970

19701975

1975

19751980

1980

19801985

1985

19851990

1990

19901995

1995

19952000

2000

2000year

year

yearAverage

Average

Average50th percentile

50th percentile

50th percentile75th percentile

75th percentile

75th percentile% of landless

% of landless

% of landlessrestricted sample

restricted sample

restricted sampleNote: The 25th percentile is not shown since it is equal to zero for the whole period analyzed.

Note: The 25th percentile is not shown since it is equal to zero for the whole period analyzed.

Note: The 25th percentile is not shown since it is equal to zero for the whole period analyzed.

D. Mookherjee


Average within-village land inequality 1967-20041.4

1.4

1.41.5

1.5

1.51.6

1.6

1.61.7

1.7

1.71.8

1.8

1.8coefficient of variation

coef

ficie

nt o

f va

riatio

n

coefficient of variation.56

.56

.56.58

.58

.58.6

.6

.6.62

.62

.62.64

.64

.64.66

.66

.66gini coefficient

gini

coe

ffic

ient

gini coefficient1970

1970

19701975

1975

19751980

1980

19801985

1985

19851990

1990

19901995

1995

19952000

2000

2000year

year

yearGini coefficient

Gini coefficient

Gini coefficientCoefficient of variation

Coefficient of variation

Coefficient of variationfull sample

full sample

full sample1.4

1.4

1.41.5

1.5

1.51.6

1.6

1.61.7

1.7

1.71.8

1.8

1.8coefficient of variation

coef

ficie

nt o

f va

riatio

n

coefficient of variation.56

.56

.56.58

.58

.58.6

.6

.6.62

.62

.62.64

.64

.64.66

.66

.66gini coefficient

gini

coe

ffic

ient

gini coefficient1970

1970

19701975

1975

19751980

1980

19801985

1985

19851990

1990

19901995

1995

19952000

2000

2000year

year

yearGini coefficient

Gini coefficient

Gini coefficientCoefficient of variation

Coefficient of variation

Coefficient of variationrestricted sample

restricted sample

restricted sample

D. Mookherjee


Proportion of landless households 1967-2004.2

5.3

.35

.4.4

5.5

% o

f la

nd

less h

ou

se

ho

lds

1970 1975 1980 1985 1990 1995 2000

year

full sample

.25

.3.3

5.4

.45

.5%

of

lan

dle

ss h

ou

se

ho

lds

1970 1975 1980 1985 1990 1995 2000

year

restricted sample

D. Mookherjee


Table: Determinants of decrease in land holdings: cumulativechanges at the household level, only natives (1967-2004)

Sample: full restrictedLand in 1967 2.862 2.143Land change -1.370 -0.926Lost due to land division -1.108 -0.785Lost through sales -0.557 -0.475Gained through purchases 0.467 0.373Lost due to reform -0.097 -0.018Gained due to reform 0.034 0.028Lost as a gift -0.116 -0.097Gained as a gift 0.030 0.032Lost for other reasons -0.060 -0.024Gained for other reasons 0.011 0.012

D. Mookherjee


Rising within-village land inequality (CV), contributionof channels 1967-2004

-.1

-.1

-.10

0

0.1

.1

.1.2

.2

.2contribution of each channel

cont

ribut

ion

of e

ach

chan

nel

contribution of each channel1970

1970

19701980

1980

19801990

1990

19902000

2000

2000year

year

yearDivision/exit contribution

Division/exit contribution

Division/exit contributionMarket contribution

Market contribution

Market contributionReform contribution

Reform contribution

Reform contributionfull sample

full sample

full sample-.1

-.1

-.10

0

0.1

.1

.1.2

.2

.2contribution of each channel

cont

ribut

ion

of e

ach

chan

nel

contribution of each channel1970

1970

19701980

1980

19801990

1990

19902000

2000

2000year

year

yearDivision/exit contribution

Division/exit contribution

Division/exit contributionMarket contribution

Market contribution

Market contributionReform contribution

Reform contribution

Reform contributionrestricted sample

restricted sample

restricted sampleNote: Each line represents the contribution of each channel to the change in the coefficient of variation.

Note: Each line represents the contribution of each channel to the change in the coefficient of variation.

Note: Each line represents the contribution of each channel to the change in the coefficient of variation.The restricted sample corresponds to Sample (2) in Table 3, i.e. only land history correct.

The restricted sample corresponds to Sample (2) in Table 3, i.e. only land history correct.

The restricted sample corresponds to Sample (2) in Table 3, i.e. only land history correct.(Includes landless and immigrants)(Includes landless and immigrants)

(Includes landless and immigrants)

D. Mookherjee


How Much Did LR Contribute to Changes in LandInequality?

The previous results indicate that the direct effects of theland reforms were to reduce inequality in landownershipBut their effects were overshadowed by changes inhousehold division, followed by land markets andimmigrationPossible indirect effects of land reform on householddivision, land markets and immigration: estimated inBardhan, Mookherjee, Luca and Pino (2011)Assessing these indirect effects, we estimate a significanttotal effect of the land title program in lowering landinequality (mainly by reducing landlessness), but no effectof Operation Barga

D. Mookherjee


Summary of Effects of Land Reform on Growth andInequality

The land title distribution program reduced landlessnessand inequality, but had no significant effect on agriculturalproductivity at the village levelThe tenancy protection program raised agriculturalproductivity, but had no significant effect on inequalityThe effects of these land reforms were dwarfed by otherfactors:

agricultural development programs, for productivitydemographic changes (fertility, immigration), for inequality

Conceivable that land reforms were essential forreasonably good local governance, but this is difficult totest econometrically

D. Mookherjee


2. From Land Reform to Land Acquisition: Why?

Agricultural productivity plateaued since the mid-90sCombined with considerable fall in land per household andper capitaMost rural households cannot rely on agriculture any morefor their livelihoodsDecline in proportion of household heads declaringagricultural cultivation as their primary occupation (lessthan 50% by 2003)Corresponding rise in landlessness (almost 50% in 2003)And in education and aspirations of the young, who seeknon-agricultural occupations

D. Mookherjee


2. From Land Reform to Land Acquisition

From the early 2000s, the Left Front realized the need toexpand non-agricultural employmentSo it bent over backwards to invite private industryTried to lure Tata away from tax concessions offered in HPand UttaranchalTata picked a site in Singur, 90 km from Kolkata, located onthe Durgapur ExpresswayWB state government used its powers of eminent domainusing the 1894 Land Acquisition Act, acquired 997 acres of(mostly) prime agricultural land

D. Mookherjee


The Fiasco

Local community in Singur was not consulted at the outset(learnt of the acquisition from newspaper reports)Owners of one-third of the land protested, backed by theTrinamul party which controlled SingurProtests escalated, confrontation between protesters andpolice...Tata stopped building its factory in 2008, withdrew toGujaratIn May 2011, Left Front lost its majority in the statelegislature for the first time in 35 years

D. Mookherjee


Understanding the Singur Fiasco (Ghatak, Mitra,Mookherjee, Nath 2013)

Use a household survey to ascertain facts concerning landcompensation offered to farmers whose land was acquiredWe compare actual compensations offered with marketvalues of acquired plots, and evaluate the extent to whichthe offered amounts were inadequateWhat were the impacts of the land acquisition on differentsocio-economic groups in the affected villages?

D. Mookherjee


Survey Details

In 2010-11 we conducted a survey of a random sample of1 in 6 households, in the 5 affected villages stratifiedaccording to landholding, occupation of head, and whetherdirectly affected or notCompared them with households in 5 neighboringnon-affected villages located on both sides of the DurgapurExpresswayFound no significant differences between affected andunaffected households within acquired villages, butsignificant differences across villagesSo we focus on within-village differences in acquiredvillages between affected and unaffected households

D. Mookherjee


Main Findings

Majority of affected owners were marginal landownersengaged in cultivation, over half of whose land owned wasacquiredGovernments compensation offers were approximatelyequal to reported market values of acquired plots onaverageBut the inability of the official land records to distinguishbetween plots of heterogeneous quality meant that asubstantial fraction of farmers were under-compensatedrelative to market valuesThose under-compensated were significantly more likely torefuse the compensation offers, as were those whoselivelihoods were more dependent on agriculture

D. Mookherjee


Main Findings, contd.

Incomes and durable consumption of affected owners andtenants grew slower between 2005-2010 compared withunaffected owners and tenantsEarnings of affected agricultural workers fell faster thanunaffected (agricultural and non-agricultural) workers;former comprised 25-30% of populationAdd to this: adverse impact on tenants (15% of thepopulation), and significant proportion (one-third) oflandowners whose lands were acquired owing tounder-compensation: majority of the local population wereadversely impactedThe process was also a major source of dissatisfaction: atop-down process, with no efforts (at least initially) toconsult or negotiate with the local community

D. Mookherjee


Implications for Future Land Acquisition Policy

Sound economic arguments for over-compensation offarmers and tenants on grounds of efficiency, equity andpolitical sustainability of industrialization programme(Ghatak-Mookherjee 2012)Local community should welcome the acquisitionWhat makes compensation tricky: (i) poor quality of landrecords; (ii) heterogeneity of plots; (iii) heterogeneity ofpersonal valuations placed by different owners on land asan asset

D. Mookherjee


Implications for Future Land Acquisition Policy, contd.

Clear that appropriate compensations should exceed themarket value of the landTwo problems with this:

Problems of ascertaining market values of acquired plots(mis-classification, incorporation of other relevantcharacteristics)How much higher should the compensation be?

LARR Bill in Parliament sets compensation at an arbitrarymultiple (quadruple) of market value in rural areas

D. Mookherjee


Implications for Future Land Acquisition Policy, contd.

This may be too high, and retard industrialization(Chakravorty 2011)Key tradeoff: set compensation high enough to satisfyfarmers, but not too high that it retards industrializationexcessivelyEconomists’ solution (extension of Ghatak and Ghosh2011): elicit households willingness to give up land byconducting auctionsCould be extended to include multi-stage auctions: at thecommunity level and then within communities at thehousehold level

D. Mookherjee


Multi-Stage Auction

Stage 1: industrialist seeks land of x acres with specifiedcharacteristics, states maximum price it is willing to payStage 2: different panchayats are asked to conduct a(conditional) procurement auction within their jurisdictionswhere they seek to procure x acres and find out whatlandowners are willing to accept for their land, upto anaggregate of x acres of contiguous landStage 3: based on outcome of stage 2, each panchayatsubmits a bid for the project: the lowest bid wins subject tomeeting the factory reserve price

D. Mookherjee


Implications for Land Acquisition Policy, contd.

We need to consider such policy options, what problemsthey may give rise toMany advantages: it is a bottom-up procedure,incorporates heterogeneity of land, and is based onvoluntary participation of those whose lands are acquiredAdditional consideration needs to be devoted to effect ofacquisition on tenants and agricultural workersAnd offer a choice to owners of different modes ofcompensation: land elsewhere, pensions, shares in theindustry, shop on factory premises, training and factoryemployment opportunities

D. Mookherjee


3. Credit for Small Farmers (Maitra, Mitra,Mookherjee, Motta and Visaria 2013)

Survey of households in 72 villages in two potato-growingdistricts (Hugli, W Medinipur)Small farmers have very little access to loans from banksor cooperative societies (less than 2%), despite largeexpansions in credit directed to rural sectorSubstantial growth of microfinance, but it does not financefarming operationsFarmers rely on credit from local traders and lenders,average interest rate 20-30%Not much higher than cost of credit to local tradersthemselves (about 20-24%)

D. Mookherjee


3. Credit (contd.): Scope for Innovative Credit Policies

We have designed a new form of microfinance product,introduced in a policy experimentAgent-intermediated lending (similar to RBI BankingCorrespondent/Facilitator model): agents are local tradersor panchayat-appointedOffer 4 month loans to clients recommended by agents at18% interest, repayments affect both loan extension andagent commissionsVery promising results: those owning 0.5-1.5 acres earnedrate of return exceeding 50%, with loan repayment ratesabout 98%Scope for scaling up (USAID/Bandhan), issues concerningrates at which MFIs lend from state banks

D. Mookherjee


4. Marketing

This is where the most important problems lie for smallfarmersFocus on potato: the most remunerative cash crop in WBengalNo major problems with regard to storage or transportKey problem: lack of direct access of small farmers tomandis

D. Mookherjee


4. Lack of Access to Markets: Middleman Margins(Mitra, Mookherjee, Torero and Visaria 2013)

More than 90% of harvested potatoes are sold to villagephorias, who resell them to wholesalers at the mandiSize of phoria margins: in 2008 average (per kg) price atwhich phoria sold to wholesaler was Rs 4.77, and boughtfrom farmer at Rs 2.14Transport/storage costs were Rs 0.20/kg; hence phoriaprofit margin exceeded 100%Low pass-through: Increase in retail price by Rs 1 resultedin increase in farmer price by less than Rs 0.20

D. Mookherjee


Why are Middlemen Margins so Large?

Could it be because farmers lack information aboutprevailing prices in mandis and retail markets?Conducted experiment where farmers in selectedtreatment villages were provided price information on adaily basis in 2007-08 (also extended 2010-13) viacellphones or local noticeboardsFindings: zero average impact on farmgate price,increased volatility of farmer earnings

D. Mookherjee


The Critical Problem: Lack of Effective Competition forFarmers Produce

Information treatments had no effect owing to lack ofeffective competition among middlemen: vertical relationsin the supply chain; possible collusion among local phoriasKey underlying problem: inability of farmer to sell directly towholesalers or retailersWest Bengal does not have APMCsHowever even in other states with APMCs, they are notreally effective, owing to control of APMCs by traders, andcollusion of government officials with buyers

D. Mookherjee


Policy Implications

Encourage competition for farmers produce (entry bydomestic or foreign corporates; contract farming) (effect ofITC e-choupals in MP)Improve mandi infrastructure and functioning (APMCregulations; esp. systems for verifying weight and quality ofproduce)Encourage panchayats to develop alternative (cooperative)marketing channels (e.g., remarkable success in China indeveloping potato cluster in Gansu province) and serve asintermediaries in contract farming

D. Mookherjee


Summary and Conclusion

Land reforms contributed modestly to rise in agriculturalproductivity and slowing down rise of landlessness in WBduring late 70s and 80sThey were possibly a necessary complement to LeftFront’s Panchayat Raj reforms, in creating functioning localgovernments that helped deliver seeds, fertilizers andcredit to small farmersBut further scope for land reforms may be limited, owing tohigh proportion of owner-cultivated small farmsSupply of credit and marketing assistance are now morecriticalNeed to devise innovative policies of directing institutionalcredit to small farmers, and enlarge their access towholesale and retail markets

D. Mookherjee


from land reform to land acquisition in west …...from land reform to land acquisition in west...

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