The Hindu Business Line : Land mines

Several issues hamper the easy acquisition of farm land for industrial projects. A mechanism created to smoothen the process must address all these problems.

The two-tier compensation mechanism for acquisition of agricultural lands that the Government is now considering is certainly a progressive attempt at tackling the issue that has turned messy after Singur. Owners of lands taken over are slated to get periodic payments in addition to the lump sum reflecting the current market value of the land. Such payments would continue as long as the industrial project that is located on the land continues to function. The intent is right, but the plan may still fail to deliver.

A premium over the current market value in the form of a solatium is already part of the current compensation structure. In the event, if the proposed annuity is only seen as something in lieu of the solatium, the mechanism would be regarded as inferior to the present arrangement as a current payment is sought to be substituted by a series of payments in the future. But even if the annuity is larger than what is currently being paid as a solatium, it is still a moot point if that would be attractive enough for the sellers to give in quietly. For one, land acquisition in the country has become so highly politicised that it is always going to be easy for a third party to create an impression in the minds of a prospective seller that, no matter what the compensation is or how imaginatively it is structured, it is still not good enough. There have been suggestions that land acquisition should be left to the private sector, but that will not make things any easier.

Many things militate against an orderly market in agricultural lands that are acquired for industrial projects. Conversion of land use itself is subject to an opaque regulatory process that adds to costs. Transactions in such assets are also subjected to high rates of taxation that are an obvious disincentive for detailed documentation of changes in ownership or for creation of an equitable interest in such lands. Most importantly, there is no mechanism akin to the `reverse book-building' process obtaining in the stock market for price discovery when large fragmented holdings have to be consolidated for industrial use. Consequently, land-owners have a vested interest in wanting to be last in the queue, as the initial sellers do not profit from the price discovered in subsequent transactions. In other words, the conditions necessary for private players to step in and accumulate an inventory of large tracts of land for on-vending to prospective entrepreneurs at reasonable prices are completely absent. Unless the Government addresses these issues, land acquisition will always prove problematic, even for the most pressing of public purposes.