Saturday, March 5, 2016

Land Acquisition: The Most Important Impending Economic Reform

As India awakes to the razzmatazz of digitization and industrialization, it is worthwhile to ask ourselves about the priorities that we set for economic reforms. The next generation of economic reforms is more about a long haul in certain aspects and an emergency in certain other aspects. Broadly assuming that India as an emerging economy continues to reel under the problems of a labour surplus economy as stated by celebrated British economist Sir Arthur Lewis, it makes enormous good sense to assert that economic reforms that India needs may be classified into two types namely: those for social overhead capital and those for directly productive activities.
While it is true that in an indirect democracy with federal administrative structure, good economics may at times be held to ransom by good politics for the sake of scoring brownie points in elections, it is equally true that some tough decisions need to be taken in order to institutionalize the economic system with much needed vitality in the long run. Land acquisition sadly is one of those decisions that will never be easy to take but needs to be dealt with not using an iron hand but by answering the incentive question.

Most questions in a free market economy concern questions of fair incentives. The incentive question is what bothers the stakeholders in cases of land acquisition. Historically speaking land acquisition is a strategic imperative for any economy before it gets set to take off on the route of industrialization. There are two comments that need to be made here. Firstly, the economy that initiated the industrial revolution, that is Great Britain had to witness the agonies of an Enclosure Movement before the Industrial Revolution. Historical accounts suggest that even a country as great as Great Britain had to forcefully and brutally acquire land by using means that were largely un-British to use the language of Indian economist and statesman Sir Dadabai Naoroji.  Secondly, the Indian economy offers a curious case of economic growth sans any worthy contribution from the manufacturing sector so far. The Clarke Fischer hypothesis that generally applies to economic growth asserts a pattern of movement from primary sector to secondary sector and them to tertiary sector. India’s case is different. Indian economy has traditionally been an agrarian economy and slowly has shifted course from agriculture to services sector by leapfrogging the manufacturing sector.

India’s growth story desperately needs a full proof land acquisition policy that answers the incentive question. The lad acquisition policy has to come clean on the method of assessment of price of land, the administering of remuneration to sellers of land and in certain cases arrange for the relief and rehabilitation of project affected people. Moreover the land acquisition policy needs to answer questions on the guarantee of securing of property rights through an effective legal economic structure as stated by the economist Hernando De Sotto of Institute of Liberty and Democracy, Lima. Yet another challenge is to adhere to the requirements of environmental clearances. Lands coming under the ambit of forest cover and tribal regions are great challenges that need to be handled with human touch. Tribal property rights present a major challenge and one has to unfortunately admit that corporations should not impose the will of free markets on tribes and indigenous people. It shall be great to assert that corporations may think of offering decent options of training and development to project affected people under their agenda of corporate social responsibility and create value by better stakeholder engagement with project affected people. Such initiatives or efforts to offer jobs to project displaced people may be made tax free. Yet another solution may be to offer pay roll subsidy to companies for offering jobs to project displaced people.
The sooner that elected legislators of India, economists and advocates come together to resolve issues mentioned above the better it is for India’s ambitious plans of Make in India campaign. On the other hand farmers and brethren from tribal communities need to understand that land as a factor of production is subject to the law of diminishing marginal returns with every season of cultivation of crops.

At Ishan Institute of Management & Technology, the first graduate business school of Greater Nodia, Delhi NCR we appreciate the efforts of the Indian leadership under the Indian PM Shri Narendra Modi to fast track the reforms agenda. As academicians of a business school we believe that businesses need to solve problems of mankind and that land needs to be put to its most productive use.