Social cohesion and land acquisition: Financial Express, Mumbai India, 4/21/07

A pragmatic re-calibration of processes could help resolve India’s SEZ conflicts

By N K Singh & Jessica Wallack

Two words — land acquisition — invoke a torrent of controversy. The dry phrase conjures up stymied infrastructure plans, months of political wrangling over special economic zones (SEZs), damaging flashpoints like Nandigram, and, at best, endless months of public discussion, legislative action and court proceedings that rarely culminate in outcomes that everybody is happy with.

India is not alone in trying to navigate the tensions between private property rights and public purposes as times change, infrastructure needs grow and the economy evolves. Worldwide, debates about ‘eminent domain’ centre on a few tricky questions that most laws (including India’s Land Acquisition Act) leave ambiguous.
  • What is public purpose? Is general public benefit, which might include higher tax revenues, or “development” of the area, enough? Or does the public have to own, control, and have open access to the newly repurposed area?
  • When should it override private property rights? This is particularly tricky for democracies, where the general concept of “the voice of the people” can be at variance with the other ideal of restraining the tyranny of the majority who would benefit from a new power plant or road if the individual would just step aside. Even non-democracies like China have conflicts between individual property rights and some kind of group desire to do something new with that property: witness the protracted battle over the “nail house” that remained standing (sticking out like a nail) until a few weeks ago while a Shanghai developer excavated the ground around it for a shopping mall.
  • What is “fair” compensation for somebody who does not want to trade his land for anything else? Not only are there technical questions about how to calculate market value, but there are also philosophical questions about what “market value” means to somebody who really does not choose to participate in the market. While most of the public outcry focuses on under-compensation of landowners, there are also strategic questions about how to avoid over-compensating private owners with public monies.

The current efforts to rewrite the Land Acquisition Act of 1894 will not resolve the conflicts, but the country does have an opportunity to at least lessen the rancour. We have two main suggestions.

The new Act should have a sliding scale for approving public purpose over private rights, with increasing weight to landowners’ voices as the “public purpose” becomes
less direct

The new Act should have a sliding scale for approving public purpose over private rights, with increasing weight to landowners’ voices as the “public purpose” becomes less direct. The current law lumps together public infrastructure, expansion of state-owned corporations, refugee settlement, and all-encompassing provisions for town or rural planning and planned development of village-sites. Until recently, it looked like SEZs might be included as well.

Eminent domain powers would be strongest for projects that the public will have open access to and directly benefit from. Elected representatives or town planners could approve land acquisition through something like the current process, which would hopefully become less contentious if the compensation suggestions below are followed.

Projects that will have restricted access or less widespread direct public benefits should require an overwhelming approval from the landowners and surrounding areas. This creates a kind of weighted public interest test to override some individual rights if developers cannot buy the necessary land through voluntary markets. A recent bill in Utah, for example, requires two-thirds of the city redevelopment authority boards and 80% of people who live in proposed redevelopment project area to sign a petition saying they want the land to be acquired under eminent domain.

Another weighting option could give even more power to affected landowners: let the group of affected landowners vote on the acquisition and compensation deal, and require a super-majority to sanction the deal in order for it to go through.

Compensation should be calculated at the time of acquisition, and linked to the public benefits obtained in any project. Market compensation should be based on the value at the time of acquisition, not notification as is now the case. Past amendments in 1967 and 1984 have reduced the delays between notification and actual acquisition, but not enough given the inevitable court cases that stop the clock on acquisition after notification.

Compensation should include the provision of a stake in future value increases. Often, the public project for which land is acquired increases land values for nearby landholders whose land is not acquired. The person who gives up the land is compensated at the old valuation, while his neighbours are free to wait and sell at the new valuation enabled by the project.

The market value at the time of notification, the current basis for compensation, is unlikely to fully incorporate the future increase in value since there are a number of hurdles in the way of the project—including the outcome of the public comment and inquiry period itself —that increase risk. A mechanism needs to be evolved which would enable those whose land is being acquired to benefit from such future gains in land value consequent on its development.

Maintaining social cohesion and undertaking land acquisition need careful balancing. Both are equally important.

Financial Express, Mumbai India: http://www.financialexpress.com

Columnist N K Singh and Professor Jessica Wallack of the University of California, San Diego, are collaborating on a book on infrastructure reform on India