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Land Sales: India’s Last Frontier?

One of the principal roadblocks to creating a vibrant Indian manufacturing system is the issue of land rights. Indian landholdings are normally quite small, and because the land is often very fertile, farmers are reluctant to give up the only occupation they have ever known, especially when caste and identity are also linked to occupation.

Here’s how the Financial Times describes the government’s latest effort to introduce a land bill acceptable to both farmers and developers:

Across India, farmers’ resistance to losing their land to develop mines, power plants, factories and urban housing has emerged as a large obstacle to infrastructure and industrial development.

Now, the Congress-led government is trying to reduce land conflict with a new law that would give communities greater say over whether they have to relinquish their land for private industry, and grant more generous compensation to those who do. . . .

But the draft law requires project developers to pay four times the market value for rural land, and to resettle the displaced – not just landowners, but also landless labourers. The proposed resettlement packages for affected families include a house, and either a job, a one-off cash payment, or an annuity to guarantee each family’s future income.

Developers, however, fear that if the new legislation is enacted, it would triple their land and resettlement costs, putting the viability of some projects in doubt. Meanwhile, many farmers are also adamantly opposed, even with the increase in compensation. Farmers generally have few or no skills other than those required for subsistence agriculture, and those who have sold out have been forced to turn to menial jobs, or to crime, to support themselves once their compensation money runs out. Some even commit suicide.

Getting this right is one of the most important things India needs to do—not only for factories but for large infrastructure projects. If it is done right, the arrival of a major employer (and a major taxpayer and a major purchaser of goods and services) in a poverty stricken area would benefit the community in ways that most people would feel directly and strongly. Done wrong, it destroys settled communities, throws farmers out of the only life they know, adds bitterness to local struggles and enriches corrupt officials.

There are win-win situations in this mix somewhere; the sooner India finds them the faster poverty will begin to disappear.

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  • Luke Lea

    Maybe India should consider this arrangement:

    Urbanization may not have to go hand in hand with modernization. The constraints are lighter today.

  • Kevin

    I think that too much reliance on eminent domain rather than voluntary transactions and strong property right protections for the poor is the root of the problem. Resorting to eminent domain, especially in a country with as much corruption as India, will inevitably lead to the connected using the power of the state to dispossess the unconnected and then unrest. The issue of holdouts when assembling small parcels of land for factories or infrastructure is an issue, but it should not be used as a smokescreen to usurp farmer’s land without consent.

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