land acquisition in west bengal - igcland acquisition in wb. how much land reforms in west bengal?...
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Land Acquisition in West Bengal
Maitreesh GhatakSandip Mitra
Dilip MookherjeeAnusha Nath
June, 2012
M. Ghatak, LSE
Land Acquisition in WB
Introduction
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 policyTransition from (missing) land reform to (messed up) landacquisition?Experience of West Bengal
M. Ghatak, LSE
Land Acquisition in WB
Introduction
With regard to land, West Bengal is different from otherIndian states in many ways:
extent of land reformstate politicsrecent land acquisition fiascos
May help evaluate what other states missed by failing toimplement land reformsMain focus will be on land acquisitionWhat can be learned from the Singur experience, usingresults from a detailed household survey of the areaswhere land was acquired
M. Ghatak, LSE
Land Acquisition in WB
How Much Land Reforms in West Bengal?
Large in comparison with other Indian statesDue to a Left Front government elected in 1978, reelectedfor a record five terms till 2010By 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
M. Ghatak, LSE
Land Acquisition in WB
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 areinsignificantEvidence from West Bengal experience is useful
M. Ghatak, LSE
Land Acquisition in WB
Effects of LR on Agricultural Productivity in W Bengal
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 and village levels1% land area distributed associated with .2–.4% rise infarm productivity, with high spillovers to owner cultivatedfarmsHowever, contribution of Operation Barga to observedproductivity growth in West Bengal in 1980s-90s wassmall, relative to various agricultural developmentprograms implemented by local governments
Source: Bardhan and Mookherjee, American Economic Journal: AppliedEconomics, 2011; Banerjee, Gertler and Ghatak, Journal of PoliticalEconomy 2002.
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Land Acquisition in WB
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
M. Ghatak, LSE
Land Acquisition in WB
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 landSmall marginal landowners - 12000 cheques issued forowners, 3000 for registered sharecroppers
M. Ghatak, LSE
Land Acquisition in WB
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 to Trinamul for the first time in 35 years
M. Ghatak, LSE
Land Acquisition in WB
Understanding the Singur Fiasco
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?Implications for future land acquisition policy
M. Ghatak, LSE
Land Acquisition in WB
Survey Details
In 2010-11 we conducted a survey of a random sample ofhouseholds in the 5 affected villages stratified according tolandholding, occupation of head, and whether directlyaffected or notCompared them with households in 5 neighboringnon-affected villages located on both sides of the DurgapurExpressway
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Land Acquisition in WB
Survey Details
Total sample size: 1100 households, approximatelyone-sixth of the relevant populationDivided equally (one third) between affected households inacquired villages, unaffected households in acquiredvillages, and households in unacquired villagesDemographics, ownership of land and other assets,education etc very similar across three groupsCompare households reports of market value of land, pastmarket transactions and compensations offered, withgovernment documents concerning compensations offeredand basis thereof
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Land Acquisition in WB
Proportion of Households Directly Affected in AcquiredVillages
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Land Acquisition in WB
Standards of Adequate Compensation
Legal standard (based on the 1894 Land Acquisition Act):according to market valueFrom an economic standpoint, this is inadequate for anumber of reasons:
Market values understate personal valuation of land formany reasons: role of land as a financial asset; those whohave not sold their land have personal values that exceedthe market priceTheoretical arguments imply compensations should be atleast as large as personal valuations, on efficiency groundsalone (Ghatak and Mookherjee 2011)Supplementary arguments on grounds of fairness andpolitical sustainability
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Land Acquisition in WB
Compensation Rates Announced: Did They Meet theLegal Standard?
Government compensation: the stated policyLand rates for different kinds of landAdditional solatium of 30%, plus allowance for irrigation,location of plots to be entertainedWe find that these were close to market values as reportedby households, and above market values predicted onbasis of past transactions
M. Ghatak, LSE
Land Acquisition in WB
M. Ghatak, LSE
Land Acquisition in WB
M. Ghatak, LSE
Land Acquisition in WB
Compensations Announced versus Actually Offered
However we find a large discrepancy between governmentrecords of offered compensation and household reports forparticular kinds of landAccording to household reports of compensations offered,average amounts actually offered for sona land did notinclude solatium, while for sali land they did
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Land Acquisition in WB
Compensations Offered
Table 2: Household reports of compensations offered werelower than announced rates plus solatium for sona plots byabout 30%, and higher than these by about 10% for saliplotsHow did this happen?Did actual compensations offered deviate from theannounced policy?
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Land Acquisition in WB
Compensations Offered, contd.
Examining the government documents, we find (Table 4 inthe paper):
On one quarter of the plots, no compensation was offered,possibly owing to inability to assess market valueOn the remaining three quarters, offered compensationsmatched the announced rates for about 97% of the plotsThis suggests that the discrepancy is not explained bydeviation of actual offers from announced rates
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Land Acquisition in WB
Explanation for Discrepancy
We believe the real reason is mis-classification of sonaplotsMany plots that used to be sali have been converted byowners to sona over time, but this change had not beennoted in government land recordsFor plots assessed a positive market value with actualcompensation offers=announced rates, governmentrecords show only 5% of plots are classified as sonaWhereas households in our sample report 32% of allacquired plots were sonaThis can account for the discrepancy (Section 3.4 of thepaper)
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Land Acquisition in WB
Under-Compensation and Decision of LandownersWhether to Accept
Under-compensation relative to market value a significantpredictor of rejection of the offer by ownersOwners of sona plots and irrigated plots more likely torejectOne standard deviation increase in under-compensationled to 12% lower probability of acceptance
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Land Acquisition in WB
Additional Determinants of Decision to RejectCompensation Offers
Two additional reasons for rejection of offeredcompensations:Inability of government rates to incorporate heterogeneityof plot characteristics
Table 9 in paper: Dispersion of land values for similar plotsacross villagesLand values also depend on cropping patterns, whether theowner has complete selling rights etc.
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Land Acquisition in WB
Additional Determinants of Decision to RejectCompensation Offers, contd.
Heterogeneity of owner’s skill-specificity, valuation offinancial security, locationEven if the government gets the land value right, there willbe a fraction of owners whose reservation values willexceed the market valueEvidence (Table 11a, b of the paper) of irrigation statusand location as determinants of likelihood of rejectionThose with stronger financial motives (landlords, thosewho bought rather than inherited) were more likely to rejectthe offersThose more dependent on agriculture for income weremore likely to reject
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Land Acquisition in WB
Impact of Acquisition on Incomes and Assets
We find significant impact on incomes of owners of plotsthat were acquired: 33% reduction compared with thosewhose plots were not acquiredImpact on affected tenants: about half as much (17%reduction)No discernible impact on earnings of workers (averagingacross agricultural and non-agricultural workers)However, gap between earnings of agricultural andnon-agricultural workers grew 24%Impact on growth of household assets between 2005-2010:only in the case of consumer durables (Rs 1 lakhunder-compensation associated with 25% lower growth)
M. Ghatak, LSE
Land Acquisition in WB
Household Preferences concerning Form ofCompensation
Many concerns voiced by villagers concerning payment ofcompensation in the form of cashConcerns ranged from vulnerability to inflation, and toself-control (temptation) problemsConsiderable evidence of temptation preferences (70% ofthe households)One third of households had access to opportunities topurchase financial annuities, of which 96% said they wouldprefer these to cash compensationYet, most households did not purchase such annuitiesDiverse preferences for alternative forms of non-cashcompensation: pension versus plot of land versus shop onfactory premises
M. Ghatak, LSE
Land Acquisition in WB
Implications for Future Land Acquisition Policy
Strong economic arguments for over-compensation offarmers and tenants on grounds of efficiency, equity andpolitical sustainability of industrialization programmeLocal community should welcome the acquisitionWhat makes compensation tricky is the heterogeneity ofplots and of personal valuations placed by different ownerson land as an asset
M. Ghatak, LSE
Land Acquisition in WB
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
M. Ghatak, LSE
Land Acquisition in WB
Implications for Future Land Acquisition Policy, contd.
This may be too high, and retard industrializationKey tradeoff: set compensation high enough to satisfyfarmers, but not too high that it retards industrializationexcessivelyProposal of Ghatak and Ghosh: elicit householdswillingness to give up land by conducting auctionsThe proposal can be extended to include multi-stageauctions: at the community level and then withincommunities at the household level
M. Ghatak, LSE
Land Acquisition in WB