OPINION

Ending Coercive Land Acquisition - Creating Options

November 09, 2008
Somik Raha

The reaction by India's industrial titans to the Singur crisis has been unanimous. Big guns like Mukesh Ambani, Narayana Murthy, Azim Premji and others have supported the Tatas and warned that the state would become a desert for investment if the Tatas had to leave, which is now a reality. Even the Prince of Calcutta, Sourav Ganguly, has supported the Tatas. Mamta Banerjee seemed to be the lone voice in support of the farmers whose land had been acquired forcefully without adequate compensation. People have called her stupid and an enemy of the state. Her own party supporters have voiced their disagreement with her opposition. In this backdrop, I am going to take on the perilous task of finding logic in her stubborn stance and also to suggest a long term solution for the future. I ask the reader to bear with me and let me explain my position.

Not our problem alone

Land acquisition issues are by no means limited to India. In the United States, there exists a law called "Eminent Domain," which in plain speak says that Uncle Sam can throw you out of your property if it sees a public good that requires the use of your land. Imagine this: a Civil Engineer (from a reputed university) contracted by the government to come up with the most optimal road plan figures out that such a road would need to pass through your grandmother’s house. The authorities send her a notice that she will be paid a certain amount, which would probably be a little lower than the market price. She refuses. Even after the compensation is hiked some more, she refuses. The authorities invoke Eminent Domain and send the cops to throw her out. As the cops arrive, the poor old lady holds on to whatever she can to prevent being dragged away, all the while crying out that this is where she has all her memories, this is where she lived with her husband until he passed away, and this is where she wants to die. She wants to be left alone. But that cannot be allowed, and the official tells her, "Ma'am, you don’t understand. The most optimal road goes through your house, and therefore, for public good, we must have it." And her cries go in vain (unless civil rights groups get into the game and sue the government for doing this). This story plays out in every society in the world (see box 1, box 2).

People all over the world are generally nice and compassionate, and most people feel bad about a story like this, but they ask desperately, "What alternative do we have for building YOUR-FAVORITE-PUBLIC-GOOD?" There is an alternative that ought to be taught in high schools for its utter simplicity. It has to be understood that the only legal power of a government is the power of coercion. And every single time coercion is used for public good, it has unintended consequences. Note all the controversies of land acquisition that have come to light, from the Narmada Dam project in the West, NanoCity in the North, Singur in the East and now Reliance might make the same mistake in Maharashtra. In India, the police knows no better than to use their guns on protesting people, often killing many. The legal costs rise and big businesses get discouraged by the reaction. In the United States, as business after business got stung by the backlash to eminent domain, a path-breaking and simple alternative emerged.

Create Options

This alternative has its roots in one of the most powerful insights that the wise have shared about decision making: you can always create OPTIONS. Taking this insight literally, let us try creating options for land acquisition (not the unrealistic't know a financial meltdown until the train hit them but the decision analytic variety whose math is simple enough to be understood by an English major with a minor effort). Let’s say Reliance plans an oil pipeline that needs contiguous areas of land. If any one of the landowners in the path of the pipeline hold out, the project will not take off, leaving Reliance with several non-contiguous pieces of land and a large hole in their pocket. In an alternative scenario, instead of buying any plot of land, Reliance could choose to buy an option from the landowner. The option will give Reliance the right to buy the land at the prevailing market (or agreed upon) price within a period of three years (for instance). This option can be valued easily using simple decision analysis tools and would be an order of magnitude cheaper than acquiring the land itself. Reliance could then plan multiple pipeline routes and try to acquire options on each of the routes. The moment they have all the options on a particular route, they can exercise the options on that route and acquire all the contiguous pieces of land.

There are several benefits to this approach. First, as Reliance is a private party, they are not required to reveal the purpose of the acquisition. They can send out agents who don't even need to reveal that Reliance is behind the acquisition. The government, on the other hand, is required to reveal the purpose of their acquisition, resulting in landowners realizing that they can make a lot of money if they hold out. The cost of acquisition will now be based on a good deal between the private party and the landowner. Second, as exercising the option is a legal right, there is no necessity for state coercion on the individual landowner. If someone holds out even after selling an option, that will be considered contractual fraud, and we have a legal framework in place to deal with that. The government no longer needs to deal with mass protests, the police no longer needs to open fire on hostile crowds, and entrepreneurs no longer need to sink large sums of money in legal costs. Third, if some people (tribals/farmers/middle class people) have a strong connection to their land and don’t want to leave it, all they have to do is not sell the option to their land. There should be no legal authority on the part of the government or the industry to force them to do so, and any forcible or fraudulent activity on the part of the entrepreneur would be subject to our existing legal framework that prohibits fraud and coercion. Human rights organizations can shift their focus from protesting to educating the tribals/farmers, while respecting the choice of these communities to accept or reject the education.

Creating options is not a new idea, and you have likely already used it in your life. We shall define an option as "the right to a future decision." A little consideration should reveal that insurance is a very good example of an option, where you buy the right to a lower medical expense should an emergency arise. The price of the option here would be the insurance premium you need to pay each year, which is a fraction of the coverage cost that the insurance company is legally obligated to pay should the situation arise. If you have played in the stock market, then you might be familiar with "call/put options" which is the right to buy/sell a stock at a predetermined price. 

Who's Doing Non-coercive Acquisitions with/without options?

If this method is so simple, why hasn’t it been tried already for land acquisition? Strange as it may sound, this has been tried – it just hasn’t been spoken about as most private firms don’t want to talk about their land acquisition strategy. I’ve heard from a reputed professor at Stanford that Disney used options to acquire most of the land they needed for their theme park at Anaheim, California, after which people got wise to the purpose behind the acquisition and hiked up the selling price. Even then, Disney saved a fortune in legal fees by using this method. (For other companies in the US, see Box 2)

The intelligent reader may point out that what works in the United States may not necessarily work in India. To which I wonder what is so special about the Indian DNA that it would not like to save lives and lower costs when it could. In any case, options has been in use in India for a long time, without us explicitly recognizing it. If you've tried buying land in India, chances are you've been asked to pay a "roka" as North Indians would call it. The "roka" is an advance that a buyer would pay a seller after which the seller would stop showing the land to others. The "roka" is an option, a right to buy the land within a specified time. "Roka" options are quite common in the real-estate market and are probably referred to with different words in different parts of the country.

Finally, I have anecdotal evidence that after Larsen & Toubro (L&T) had completed acquiring land for the third Howrah Bridge in (hold your breath) West Bengal, neighboring land owners who had been skipped were upset at missing the pie, and begged L&T to consider buying their land too. It seems that landowners in West Bengal also like good deals, like landowners anywhere else.

Challenges

There are some legitimate challenges to applying this solution, especially in places like West Bengal. The business climate in the state is highly interventionist, with entrepreneurs unable to operate without the blessings of the prevailing local political party. In such a situation, talking about free markets is a travesty. The current government needs to realize that it cannot replace coercive prevention of industry by coercive adoption of it. It needs to start with the fundamentals and shrink to a minimal form of government. But then, what will happen to the party ranks? Instead of employing cadre into what amounts to an organized land mafia, they can be encouraged to become social entrepreneurs who combine the best of capitalism (freedom) and communism (caring for the community) while leaving the worst out (greed and coercion respectively). While this might take some time, a first step for India would be people from all walks of life coming together to demand the revoking of Article 300-A so that no government has the right to take away private property through any argument of public good. In today's society, we should realize that governments claim almost any economic activity as a public good, and eminent domain laws become a vehicle for individual abuse.

While economists would welcome the strengthening of property rights, they may raise several objections to entirely scrapping Eminent Domain laws in India. First, they will point out that there are "actual public goods" that a government must provide (e.g. roads, wildlife reserves, forested lands). How is the government to do so without laws that resemble eminent domain? Second, private parties cannot freely purchase agricultural land in India. We would need laws that allowed for land use changes, and we still need to consider if such a change is in public interest. Third, individuals sitting on vast natural resources ought not to have the right to refuse their commercialization - this is an argument for eminent domain laws. Fourth, there are thousands of land holders who have title to a small amount of land. This makes it infeasible for private parties to negotiate with so many, hence, the government is a good intermediary. Finally, you would need a sophisticated buyer and seller to be able to use options.

Lets take these arguments one by one. First, it is a 20th century idea that governments are responsible for public goods. There is ample evidence of societies that did fine in the past without government intervention in every sphere of life. As evidence in our present time, look at all the public goods in India and you will find those are the services that are most lacking in creativity and innovation. In the United States as well, the government builds roads as a public good. This is one sector which has seen so little innovation that you now have cars that are built to touch 200 miles per hour and roads that can only handle 65 miles per hour. Think about all the private toll roads you've been on in India and compare them to the government maintained roads, and the difference should immediately be apparent to you. India is full of examples of social entrepreneurs who have given up on the government's ability to provide public goods and provided solutions themselves, either as a for-profit or as a non-profit. Sulabh International builds public toilets(shauchalayas) that are financially sustainable and pay for their construction cost quickly, while generating employment. See Box 3 and Box 4 for further examples. Second, I agree that private parties should be allowed to freely purchase agricultural land and the land owner should have the right to decide how the land should be used. If the current land owner feels it is important that the land use should not be changed, this can be specified in a contract at the time of sale. The argument is often made that good agricultural land should not be used for non-agricultural purposes. If we truly believe that, then we should immediately proceed to demolish all the government (and other) buildings in Kolkata, which has some of the best agricultural soil you could find being on the banks of the Ganga. Third, it is possible to grant an individual the right to their property while one could also construct rights for what lies below the property and separate the two. Once this is done, there is an incentive for entrepreneurs to find ways to drill for oil or a similar natural resource without disturbing the landowner who is at the surface. Fourth, the argument of "too many land owners" is a terrible one, as the government does no better, and arguably worse, than a private negotiator. In fact, a private negotiator would not have the advantage of guns and would have to be polite and stay within legal boundaries. Perhaps, this is an area where an entrepreneur could provide negotiation consulting services. Finally, the argument of sophisticated buyer and seller is an argument for education, although the Indian market is already using "roka" options without doing sophisticated decision analysis. Companies that need help modeling options can hire decision consultants just like they hire tax consultants. I admit that companies will have an advantage in pricing methodology over individual landowners. However, this is a good reason for the creation of a friendly social venture that offers pricing services to individual land owners. On the topic of decision education in India, there is much that needs to be done. (See Box 5)

Philosophical, Economic and Traditional Reasons

Options should be used for both philosophical and economic reasons.

Philosophically, even if everyone around me says that murder and theft is the best way to get what I want, I refuse to do it, and I will argue that India, with its deep spiritual tradition of acceptance of all religions, systems and ideas, should stand firmly behind non-coercion. Just as the tool of coercive land acquisition is the use of a police force with guns, the tool of smart non-coercive land acquisition is options. Economically, let us be clear that while using options has lowered the cost of land acquisition for many, the method itself is not going to guarantee that industrialists will get the land they want, which is no different from the case of using coercion as we have just seen the Tatas getting thwarted even with government support. If both methods cannot guarantee success, and the coercive one consistently creates more headaches, takes lives and increases costs, then we ought to throw our weight behind the non-coercive methods.

Finally, traditionalists might point out that in the Indian tradition, the individual must sacrifice for the family, the family for the community, the community for the state and the state for the world (a maxim approved by Sri Krishna). While this is a noble spiritual idea, it is not what is followed today. On the other hand, a more accurate maxim for the practice of the modern day is, "the individual must be coerced to sacrifice for the family, the family for the community, the community for the state for the world." Every spiritual tradition in India recognizes a supreme internal freedom asks its followers to acknowledge and become aware of it. It is but natural that India lead the world in giving expression to this internal freedom in our external environment. We can start by recognizing that individual sacrifice is a decision to be made only by the individual, and coercion has no place in a society that wants to call itself free.




Almost every country in the world has a legal mechanism that resembles Eminent Domain laws. In the United Kingdom, New Zealand and Ireland, these laws are referred to as "Compulsory Purchase," while Canada and South Africa call it "Expropriation." India used to consider right to property as a fundamental right under Article 19(1)(f). This meant that your land could not be taken away except under the Land Acquisition Act of 1894, or a similar state law, which allows the use of forcibly acquired land by the Government "in the interests of the general public or for the protection of the interests of any Scheduled Tribe". The Land Acquisition Act of 1894 empowered the Central and the State Governments to acquire lands that they felt was necessary for a "public purpose". Public purpose was defined so broadly that even land use by state-owned corporations was included, thus turning this law into an all-powerful mechanism for the British. While this British baggage continues to this day, in 1978, the right to property was shifted out of fundamental rights so as to make it harder to challenge land acquisitions by the government, and Article 300-A was introduced which said that "no person will be deprived of his property save by authority of law." In other words, the state/central government can take your land away if Parliament or State Legislatures make a legislation/order/rule to do so, in exchange for compensation determined under the Land Acquisition Act by the Collector. You can challenge the action of the government in a court if you think the government has acted unfairly, and in most countries (except authoritarian ones like China), this leads to protracted legal battles, civil rights headaches for the government and spiraling legal costs for the industry involved. The Land Acquisition Amendment Bill (2007) is an effort to reform the 1894 law, but how much band-aid can one put on a gaping wound? Senior Advocate Bishwajit Bhattacharyya recently outlined in the Statesman (Oct 29, 2008) how even passing a law under Article 300-A has been successfully challenged in court. How many people have the resources to take on the government when their rights are violated?

 
At this time, the United States probably has the worst eminent domain laws on the planet. In 2005, a controversial Supreme Court ruling upheld (by a 5-4 vote) the government's use of eminent domain powers to take private property from one owner and transfer it to another owner under the pretext of economic development. This ruling was criticized publicly by many noted people, including Bill Clinton. Justice Sandra Day O'Connor, who voted against the law in the famed Kelo v. City of New London case, warned that this new addition would "wash out any distinction between private and public use of property." For the first time in US history, governments could use eminent domain powers to declare ordinary private use of property as a "public use." In a report by the Castle Coalition (a network of homeowners and activists in the US determined to stop the abuse of eminent domain), there have been more than 5,000 instances of abuse since the Kelo decision. This figure includes cases where private property owners have threatened the use of eminent domain on reluctant sellers to agree to their price or risk having their property taken away by force. This situation is quite comparable to India where the government acquires lands for private parties under the argument of "economic development."

The report also goes on to debunk the myth that eminent domain laws are needed for economic development by citing several projects that did not use eminent domain. Walt Disney's construction of Disney World, The Rouse Company's construction of a new city in Howard County, Maryland and Focus Property Group's creation of a 3000-acre community called Mountain's Edge are some of the examples. Disney World is particularly interesting to us as they used options quite heavily. Further Reading: http://www.castlecoalition.org



Box 3: Social Entrepreneurs in India, a powerful force for public good
Arvind Eye Hospitals in Madurai (and other cities in South India) treats patients who cannot pay; free of cost and make up their money from people who can. Exnora in Chennai (and now several other cities) has created a system of garbage cleaning where an erstwhile scavenger now collects garbage from each home and dumps it in the proper place, for a fee. LaserSoft Info Systems in Chennai employs "disabled" people and puts them to work in the field of banking software. The Sangini Mahila Seva Cooperative Society is for, of and by sex workers in Kamathipura, Mumbai's oldest red-light district, where sex workers gain access to banking services and rise out of destitution. A similar and older initiative has been quite successful in Kolkata's Sonargachi district. The popular Lijjat Papad is made by a social venture, Shri Mahila Griha Udyog, founded by Sarvodaya members. This is an organization focused on creating a dignified work environment for women in a decentralized manner, and its success should inform case studies in any serious business school. Most Indians are familiar with "utterly, butterly delicious" Amul butter. Amul stands for Anand Milk Union Limited, a social venture inspired by Sardar Vallabhai Patel, which is privately run as a cooperative to give milk farmers a good deal and provide high quality milk products to society. Anandwan is a social venture in Maharashtra founded by the late Baba Amte, and run as a self-sufficient rehabilitation center for people afflicted with leprosy. Anandwan has incorporated environment-friendly processes into the local lifestyle without your tax money.

Box 4: Environmental Social Entrepreneurship in the US
The Nature Conservancy (http://www.nature.org/) is a US charitable institution that acquires forested land using existing land acquisition laws as a private party in order to conserve it. Aimed at preserving bio-diversity, this organization has been voted as one of the most trusted national organizations in the US in online polls. Their work has led to the creation of several national parks. The Proactive Carnivore Conservation Fund is a private initiative by an organization called Defenders of Wildlife that finds innovative solutions to prevent people from killing wildlife (such as compensating farmers for the livestock they lose to wolves in return for sparing the wolf's life). The Property and Environment Research Center has an instructive article by the founder of this project, Hank Fischer, at http://www.perc.org/articles/article319.php

Box 5: Decision Education
It is a pity that most business schools in India either skip Decision Analysis or teach it as "Decision Tree Analysis," which is like stripping all the philosophy from yoga and teaching it as a bunch of stretching exercises. There is only minimal benefit in doing so. This is not just a problem in India but also in the United States (as you can see from the massive financial crisis). What is even more pitiable is that people need to wait till they get to a university (there are only a few that teach this as a philosophy) to learn good decision making. To remedy this, the Decision Education Foundation (www.decisioneducation.org) teaches high school children the basics of good decision making. Perhaps it is time to start a chapter of the foundation in India.

Here is a very brief introduction to the philosophical foundation of decision analysis (DA). DA does NOT help you predict the future or maximize the chance of the best outcome. For that, you are better off going to an Indian astrologer or a financial engineer (though I wouldn't trust the financial engineer - I recommend the book "The Black Swan" for people who call themselves statisticians or financial engineers). DA is an amoral method that helps you stay consistent with your preferences, information and alternatives. DA disabuses you of the notion of "objective decision making," making it clear that you can only judge the quality of your decision, not someone else's. Even more fundamentally, the quality of your decision must be judged before the outcome, as you cannot judge a decision from the outcome. If you knew the outcome, you wouldn't have a decision to make. Another fundamental tenet is the principle of sunk cost - the past matters only for learning, not for accounting.

Somik Raha is a Ph. D. student in the field of Decision Analysis. He believes that you can believe what you like. So he believes that people in this world are good. He believes that in a free society, peaceful and honest people should be left alone.
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#1
Sourav
November 9, 2008
11:25 AM

It's a long and interesting article.

In West Bengal however government or private land aquistion of huge contiguous chunks, is going to be very tough always. The article mentions the successful acquistion by L&T for the Nivedita Bridge. However consider the Vidyasagar Setu. For almost a decade land for the ramps in Howrah side could not acquired because of litigation and opposition. So even after the Bridge was complete, the bridge led to nowhere (except Andul Road and Foreshore/GT Road). The Kona connectivity came after many more years. The Mandirtala connection still ends in a narrow lane. On the Kolkata side ramps, a place of worship created a lot of delays and heartburns too. Now consider the Metro Rail extension. It is being delayed by more than two years because of a few property owners not wanting to give up their property. The East West Metro is already in trouble with people not ready to move in the Bowbazar area. In Bonhooghly, people renting government flats are not ready to move out temporarily (with Rs 2000 rent paid by Govt) so that the nearly condemned buildings can be demolished and new apartments can be built which will be given free to them. The renters are not happy with getting free apartments. They have gone into litigation and are even questioning why part of the government land will be used for joint sector development. Private developers trying to acquire land in eastern Kolkata for a new township have been hit by organized agitation. The Dankuni township is in a limbo. The Katwa power plant will not happen in all probability. The extension of the Burnpur Steel Plant was held up for long by organized agitations. The expansion is now held up because the people apparently don't want to give up a football ground! The Midnapore deep sea port is in deep trouble as the organized protestors have said that they will not give up land. The national highway 34 cannot be expanded because organized protests are holding it up. The airport runway could not be expanded because a place of worship had to be shifted and despite getting new land and compensation, religious sentiments politics put and end to the project.

The reason for such problems in West Bengal lie ironically in the empowerment of small farmers under operation Barga. That land re-distribution scheme did bring initial success in the field of land reforms. The families that benefitted at that time today have many more family members holding a stake in that same little piece of land. So not only is land holding fragmented, each land holding has multiple stake holders (legal or otherwise).

The opposition party in the state has seen a golden opportunity in this. They have tasted success in Singur and Nandigram. So they will not allow any land acquistion process to go through without massive hurdles even if it means loss of investment. The loss of investment means nothing to the opporition parties. The gain of votes is all that matters to them. One cannot blame the opposition party alone for this attitude. Today's ruling party would have done the same if they were in opposition (see their activities in other states like Orissa for proof). Also legality of land acquistion hardly matters because even after courts declare that land acquistion is legal, opponents will claim that the laws are flawed and never give in.

If a thousand acres of land has 12,000 legal stakeholders and countless non legal stake holders, it will be near impossible to acquire such land through private deals in a short time basis. It can take years and no industry will wait that long, they will just shift to another state.

In the short term, there is very little hope for large scale land acquisition in West Bengal for industries or urbanization. The whole issue has been too deeply politicised.

Also the fact that many other so called advanced states don't have such levels of organized violent politics, makes it doubly difficult for West Bengal to be a viable investment zone. Reliance (or any group) will not wait for people of West Bengal to decide over ten years whether they will give land or not (sell, lease or sit tight). They will simply go to Gujarat or TN or Maharashtra where there is very little organized opposition to industrialization.

#2
Somik Raha
URL
November 9, 2008
12:48 PM

Sourav,

Vidyasagar Setu and all the other projects you mentioned involved the government as the land acquirer. As I mention in the article, the government is required to reveal its purpose. The moment the purpose is revealed, people realize that holding out is a good idea. This is not so with private parties.

The government, IMHO, should not get into land acquisition at all, and instead encourage private parties to do it themselves, by buying options. Of course, some of the legal infrastructure around land use might need to be reformed for this.

If a thousand acres of land has 12,000 legal stakeholders and countless non legal stake holders, it will be near impossible to acquire such land through private deals in a short time basis. It can take years and no industry will wait that long, they will just shift to another state.

It depends really - after all L&T managed to get what they wanted and the bridge opened in record time. I think people, left to themselves, and restricted to non-coercive options, can be quite creative. Construction companies tend to have a long horizon - if they don't perhaps there is a need to start a new one that does, either as a for-profit or a non-profit.

#3
kerty
November 9, 2008
02:33 PM

Soumik

As soon as big business show interest in any area, the land prices in that area would shoot up and people would hold out to extort windfall prices - people know the projects worth mega money can not go anywhere without submitting to their terms. So there is no such thing as market prices - land-holdings create a monopoly bargaining position and owners would get to blackmail the buyers into windfall prices. All it takes for the land owners is to hold out and hold the projects at ransom - what is few crores to projects with outlays in maga crores?

That is why Government intervention is often needed. India needs to study how municipalities of small towns and suburbs attract industries - they put subsidized land, tax incentives infrastructure support etc on the table to attract industries.

In India, sad thing is none of the solution would work.

Who would trust the powers of eminent domain in the hands of politicians? As soon as government gets involved, political parties enter the fray to extort their pound of flash - project can't move ahead unless powers that be give their green light. Than there are professional NGOs and self-appointed social activists - unless the projects are blessed by them, they can organize andolans and morchas to stall the projects for years - there can not be shortage of people who feel they got a raw deal and movements can be built around them to stall the project. Some groups feel they have priority access over resources and government - they need to be appeased every time government makes major decisions - government is not allowed to deal with people directly, it must deal with people thru such groups and leaders and go thru them to people. Yet, that is what it takes when scope of project is so big that private players can not cope with it on their own.

#4
kaffir
November 9, 2008
03:23 PM

Somik, what is this free market? Care to give any examples of a country where it is practiced, instead of just being a theoretical concept?

#5
K. M.
URL
November 9, 2008
04:13 PM

kaffir,
Let me just go back about 250 years in time and ask
"What is this democracy? Care to give any examples of a country where it is practiced, instead of just being a theoretical concept?"

#6
Sourav
November 9, 2008
04:29 PM

Somik

I understand your point of view completely.

The Nivedita Bridge project proposal started taking shape in 1993 when a techno feasability study was undertaken by GOI. There were plenty of delays for a variety of reasons including land acquistion. The state government had to evict hundreds of residential and commercial land owners on the Howrah side. On the Kolkata side, there was a litigation with the land the Baranagar jute mill. The government completed most of the land aquistion ground work over many years, before it handed over the project to the L&T led consortium in 2004. After that it was quite a breeze for the project.

Time bound private industrial investment like the Tata Nano project will not wait for years (or even months) for consensus to arise amongst thousands of land owners who take their own sweet time to decide. As seen in the case of the Tatas, they will just move to another state where land is available.

As long as easier and swifter alternatives are available, private investors will not want to get involved in land acquisition without active government support. It doesn't make economic sense for the private investors.

Also it is not that they are not trying that route. USEL has proposed to buy land direct from farmers for their mega power plant project in coastal West Bengal. But the reception from farmers has been cold and USEL is signing an agreement with Gujarat government on Monday as the Gujarat Government has the land available.

Also as you mentioned, laws may have to be changed about land ownership and type - I believe there is a ceiling on land that can be owned by a private entity and also rules about conversion from agricultural to industrial usage.
So no private company can do large scale land acquistion without government intervention.

In West Bengal, the current unique political, social and economic situation will never make it easy for land acquistion.

#7
temporal
URL
November 9, 2008
04:45 PM

somik:

pls. don't mind my saying so but this is a badly laid out article...too crammed

what is the need for "boxes"?....and...where is box 1 and 2?

***

Second, I agree that private parties should be allowed to freely purchase agricultural land and the land owner should have the right to decide how the land should be used. If the current land owner feels it is important that the land use should not be changed, this can be specified in a contract at the time of sale.

there are some very serious flaws in above

land use is subject to municipal, regional, county, province and country master plans.... the seller cannot dictate any land use to the contrary



#8
kaffir
November 9, 2008
06:52 PM

K.M., methinks you misunderstood. I am questioning the use of "free market" to describe what exists today, not something that may or may not exist tomorrow.

#9
Somik Raha
URL
November 10, 2008
11:03 AM

Temporal wrote:
pls. don't mind my saying so but this is a badly laid out article...too crammed

what is the need for "boxes"?....and...where is box 1 and 2?


Thank you for the feedback, temporal. The need for the "boxes" was to keep the flow of the main argument while presenting reference information that you could check on your own. This is similar to boxes that you'd see on newspapers. The preview showed the boxes looking like boxes, but in the final published version, they got messed up. The editor has kindly agreed to fix it after the fact, and I guess it should show up soon.

Box 1 is after the first horizontal line, starting with "Almost every country..". Box 2 starts in the next paragraph with "At this time,.."

#10
Somik Raha
URL
November 10, 2008
12:55 PM

Kaffir wrote:
Somik, what is this free market? Care to give any examples of a country where it is practiced, instead of just being a theoretical concept?

Kaffir, it depends on where you come from. If you are in Delhi, you can check Sarojini Nagar market. If you are in Chennai, go to Pondy Bazaar. If you are in Bangalore, go to City Market. If you are in Kolkata, go to Gariahat. If you are in Mumbai, go to Juhu beach. All of these places have vendors selling their products without the government telling them what the price should be. If there is a meeting of the minds between the buyer and the seller, there is a deal.

If you are not in any of these places, go to the place where you buy your groceries. That should be a good example.

#11
Somik Raha
URL
November 10, 2008
01:40 PM

Sourav wrote: The government completed most of the land aquistion ground work over many years, before it handed over the project to the L&T led consortium in 2004. After that it was quite a breeze for the project.

That's kind of interesting. Are you saying people in Dakshineshwar didn't get a good deal from L&T, but from the government?

Sourav wrote:
As long as easier and swifter alternatives are available, private investors will not want to get involved in land acquisition without active government support. It doesn't make economic sense for the private investors.

As I pointed out in the article, with government support, the Tatas were not successful. On the other hand, there have been several cases that going without the government can work. I do agree with you that the environment in West Bengal may be too vitiated for business to work without government or political interference.

Sourav wrote:
Time bound private industrial investment like the Tata Nano project will not wait for years (or even months) for consensus to arise amongst thousands of land owners who take their own sweet time to decide. As seen in the case of the Tatas, they will just move to another state where land is available.

Tatas should make the best decision for themselves - it is alright if they don't come to West Bengal. It is not alright, ethically, for landowners to be pushed out of their homes if they don't choose to leave voluntarily. If we limit ourselves to questions of prudence, then we have much to learn from Hitler's regime which busied itself with questions of how to transport the most number of Jews to concentration camps most efficiently. However, in real life, prudence is not everything, and the ethical nature of a decision is very important.

The point of my article is that we must be clear on our ethical foundation, and our prudential activity should not lead us into ethical traps, such as imposing our value judgment on others. If we do prefer ethics over all else, then we should not contradict ourselves by raising questions of "what other option is there?" and be happy with the failure of the business to acquire land (with or without options).

But, if we use an argument of national or public good to justify ethical violations, then we should put ourselves and our loved ones in the position of the landowners, and check our consistency (in not just talking but actually doing).

#12
Somik Raha
URL
November 10, 2008
02:12 PM

Temporal wrote:
there are some very serious flaws in above

land use is subject to municipal, regional, county, province and country master plans.... the seller cannot dictate any land use to the contrary


You are talking about "what is so." I am talking about "what should/could be."

#13
Somik Raha
URL
November 10, 2008
02:17 PM

Kerty wrote:
As soon as big business show interest in any area, the land prices in that area would shoot up and people would hold out to extort windfall prices - people know the projects worth mega money can not go anywhere without submitting to their terms. So there is no such thing as market prices - land-holdings create a monopoly bargaining position and owners would get to blackmail the buyers into windfall prices. All it takes for the land owners is to hold out and hold the projects at ransom - what is few crores to projects with outlays in maga crores?

Did you read the full article? I quote from the article "There are several benefits to this approach. First, as Reliance is a private party, they are not required to reveal the purpose of the acquisition. They can send out agents who don't even need to reveal that Reliance is behind the acquisition. The government, on the other hand, is required to reveal the purpose of their acquisition, resulting in landowners realizing that they can make a lot of money if they hold out. The cost of acquisition will now be based on a good deal between the private party and the landowner."

Kerty wrote:
Who would trust the powers of eminent domain in the hands of politicians?

I agree. That is why I am suggesting the scrapping of Article 300A and making it illegal for the government to get involved in land acquisition. Even if that is not done, the private sector can explore buying options to acquire land quietly, through third-party agents, without revealing their identity. They would save a lot of money by doing so.

#14
kerty
November 10, 2008
02:55 PM

Somik

"First, as Reliance is a private party, they are not required to reveal the purpose of the acquisition. They can send out agents who don't even need to reveal that Reliance is behind the acquisition."

I do not think any major project can be kept a secret from government, media or people. Leaks are inevitable and that is all it takes to spread the news.

#15
Somik Raha
URL
November 10, 2008
05:53 PM

Kerty wrote:
I do not think any major project can be kept a secret from government, media or people. Leaks are inevitable and that is all it takes to spread the news.

Yes, but if 70-80% of the land can be acquired without people getting to know (through third party agents), you'd save a lot of money.

This happens right now in a number of areas - for instance, when you want to acquire a domain name, it would be very foolish for you to reveal your identity if you were a big firm like Microsoft. You would hire agents to do it for you.

In land acquisition, you don't need to start buying the land as soon as you get the option (that would be counterproductive). As long as you don't exercise the option, it is hard for people to find out, and even if they do, they'd know only the agents who have the options, who are not obliged to reveal who their client is.

#16
Dark Lord
November 11, 2008
09:19 AM

Usage of third party agents

AFAIK, these were used a lot in Navi Mumbai and the last I heard, locals have started thrashing outside/non-navi mumbai agents. In fact, to visit these land sites, you need to take the local agent along for safety.

Using options

Pricing is a issue. Roka is not exactly the way to go about it. Roka values it at current market prices (equivalent to renting for 1 week for an option of 1 week) esp in the rental market of Mumbai. You don't go about in the neighboring fruit and vegetable market buying options. Indian public is not used to it. and no, roka is not an option in the Indian context.

Behavior of competitors

lets assume Essar Oil plans to build a gas pipeline from gas finds in Andhra Pradesh to Maharastra/Gujarat. Essar Oil being a public limited company has to declare the gas find as well as future plans to build the pipeline to its shareholders (good corporate governance). It might not inform the investors the route but it would have to tell that it plans to set up a pipeline and is buying land. Now, XYZ is thinking my competitor is planning to build a pipeline, I know what are the possible routes he can go through, why dont I just buy some land and block it off.

#17
Sourav
November 12, 2008
01:16 AM

Samik,

You raise some interesting points.

Let me clarify. My previous observations have nothing to do with ethics or prudence. They are about incidents that happened and why I think they happened. You mentioned the example of L&T and I pointed out that there was more to it. I also pointed out why I think, the Tatas left and why the current scenario in West Bengal is not conducive to industrialization through land acquistion.

Do you think it will be ethical if Reliance went about acquiring land without mentioning the reason for it? It seems on the other hand to be an example of prudence. A "good deal" between Reliance and a farmer may be all about prudence and nothing about ethics.

The debate of ethics vs prudence is a complex matter - much beyond my scope.




#18
Somik Raha
URL
November 12, 2008
02:11 AM

Sourav wrote:
My previous observations have nothing to do with ethics or prudence. They are about incidents that happened and why I think they happened.

I agree. We are talking about two separate things - I am trying to find a philosophy that can guide our thinking through such challenges, in other words - I am focused on "what can be," while you are describing what happened, or "what is so."

Sourav wrote:
Do you think it will be ethical if Reliance went about acquiring land without mentioning the reason for it? It seems on the other hand to be an example of prudence. A "good deal" between Reliance and a farmer may be all about prudence and nothing about ethics.

While a "good deal" is certainly about prudence, let us be clear about what we mean by "ethical." To me, ethics is about truth telling. Telling a lie is unethical. However, there is a third option, beyond telling a lie and telling the truth, and that is - keeping one's mouth shut. It is an underused and underexplored option, and can take us out of ethical quandaries. I don't see what ethical dilemma Reliance would fall into if they chose to keep quiet about what they want the land for (or that they are involved). There would be issues if they falsified information and misrepresented anything, but hiring agents to act as proxies should be fine - we do it all the time for several things.

You might argue that if landowners knew Reliance was involved, they'd hike up the prices, and so Reliance should reveal their involvement. That is a prudential, not ethical argument, on the part of the landowners, just like the guy selling you a torch does not need to tell you how much he actually paid for it.

#19
Somik Raha
URL
November 12, 2008
02:21 AM

Dark Lord wrote:
AFAIK, these were used a lot in Navi Mumbai and the last I heard, locals have started thrashing outside/non-navi mumbai agents. In fact, to visit these land sites, you need to take the local agent along for safety.

That sounds familiar. I believe this is also true of Bengal and other places. I wish people wouldn't be violent - I wonder what they'd gain by it. Though, as land seekers, you would quickly learn which regions to avoid for your own good.

Dark Lord wrote:
Pricing is a issue. Roka is not exactly the way to go about it. Roka values it at current market prices (equivalent to renting for 1 week for an option of 1 week) esp in the rental market of Mumbai. You don't go about in the neighboring fruit and vegetable market buying options. Indian public is not used to it. and no, roka is not an option in the Indian context.

I am not able to follow your argument here. If Roka is exactly the same as the real thing, then why not take the real thing? That does not make sense to me. An option would have to be priced less than the underlying asset you want to buy for it to make sense, and from what I gather about Roka, its like a small advance payment to hold the land for you, just like an option. So, I think you might want to reexamine your conclusion - ask people who've paid advances on land that they've subsequently bought (or not).

Dark Lord wrote:
lets assume Essar Oil plans to build a gas pipeline from gas finds in Andhra Pradesh to Maharastra/Gujarat. Essar Oil being a public limited company has to declare the gas find as well as future plans to build the pipeline to its shareholders (good corporate governance). It might not inform the investors the route but it would have to tell that it plans to set up a pipeline and is buying land. Now, XYZ is thinking my competitor is planning to build a pipeline, I know what are the possible routes he can go through, why dont I just buy some land and block it off.

XYZ could do that, and it does happen. I don't see the problem here - how is this any different from present society? Why should we be interested in preventing people from being hypercompetitive (legally, I mean). Prudentially, you could try to educate the players and show evidence from industries that have gone up in smoke due to inter-company wars and lack of diversity. But legally, its upto individual companies and they should have the right to be stupid/short-sighted/etc.

#20
Sourav
November 15, 2008
03:49 PM

To wit, in West Bengal probably none of this good intentioned theories will work. It is a state where the ruling Left Front, the opposition parties of Trinamool and Congress-I and rag tag parties, ultra lefts like maoists/naxalites and their city based jhola bag fronts, NGOs, social activists, elites and intellectuals have adopted the motto of "Cholcche Na, Cholbe Na". With that kind of passionate love for status quo, the state has only one way to go - that is down the drain. It can as well change its name to Waste Bengal.

#21
Somik Raha
URL
November 16, 2008
12:41 PM

Sourav wrote:
To wit, in West Bengal probably none of this good intentioned theories will work. It is a state where the ruling Left Front, the opposition parties of Trinamool and Congress-I and rag tag parties, ultra lefts like maoists/naxalites and their city based jhola bag fronts, NGOs, social activists, elites and intellectuals have adopted the motto of "Cholcche Na, Cholbe Na". With that kind of passionate love for status quo, the state has only one way to go - that is down the drain. It can as well change its name to Waste Bengal.

I agree that the state is in a tragic time-warp. However, I am sure you will concede that this wasn't always so. There was a time when the communist ideology first appeared and took over the mindset. Perhaps it has also to do with the violent rebellion against the British. That rebellious attitude hasn't left the Bengalis.

However, I believe that with changes in the current education system, we can teach constructive solutions and engage with people for change. In the Indian political spectrum, we have the Left, which believes in social freedom, but not in economic freedom, and then we have the Right, which believes in economic freedom, but not in social freedom. India badly needs what Amartya Sen calls a "Secular Right," which believes in both social and economic freedom.

And I wouldn't be so pessimistic - I think attitude changes do happen, and people can decide to wake up the next morning in a different state - like those who slept off in East Germany to wake up to a united and non-communist Germany. I recommend the film, "The Lives of Others," which captures beautifully how people do change.

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