The Vicious Trap Of Rehabilitation & Resettlement

Activists have so badly the rigged the land acquisition process against the government that land acquisition even for legitimate infrastructure projects looks nearly impossible. In the third part of our series on the Land Acquisition Act we look at the how sections on rehabilitation and resettlement will almost certainly bring any acquisition process to a halt.

If you want to read the earlier instalments: Part 1 and Part 2

In the first part of this series we explored the need for government intervention in the land acquisition process. In the second part we addressed the ethical question of who owns the premium accruing out of change of land use purpose. In this third and final part we discuss some of the important clauses in the Rehabilitation and Resettlement (R&R) part of the LARR Act 2013. The LARR act 2013 is different from the Land Acquisition Act 1894 because of the inclusion of rehabilitation and resettlement clauses within the same act. Hence the R&R part is perceived by activists as the crowning jewel of social justice. In this article we discuss some of the darker sides of the act.

Confusion in the Objective of R&R

We discussed in the second part that the compensation and rehabilitation package of land acquisition needs to be fair and holistic; but in line with the specified land use purpose. Logically it should be equal to the lifetime replacement value of agricultural land to all affected people i.e. the package should enable the affected farmers and their families buy a similar farmland elsewhere, transfer and settle down smoothly. However it is perfectly understandable that some of the affected farmers may not be willing to make this move; but may instead prefer to re-skill themselves and pursue an alternate occupation.

Also as a national policy it makes sense to incentivize the over-staffed agricultural sector to divert surplus human resources towards manufacturing and services. This will not only help reduce staffing shortages in other sectors and improve the per capita income of the country, but may also perversely incentivize agricultural sector to start adopting more productivity enhancing labour efficient practices. One would have expected the objective of the compensation cum rehabilitation package to be reflective of this worldview; something that is shared by both UPA and NDA.

However, the LARR act works with a radically different worldview. To put it bluntly, it almost assigns responsibility to the state for taking care of the affected people for the rest of their lives. This perversion manifests in multiple places within the act. Firstly as discussed in the second part, it passes the entire premium accruing out of the change of land use purpose to the title holder. This is four times the market value of the rural agricultural land when one includes the solatium. This is like a windfall to the titleholder with no incentive to pursue agriculture post hoc.

Secondly the choice of rehabilitation is perversely linked to the amended land use purpose. That is if the land was acquired for irrigation/hydel project it encourages a land for land option to continue agriculture, if it was acquired for an urbanization project it encourages taking a home/apartment within the developed land. If it was acquired for an industrial project (manufacturing or services) then re-skilling and an alternate job is offered only as an option. But there are more attractive alternatives in that bucket viz. a lump sum of 5 lakhs (or) a monthly pension of Rs. 2000 for the next 20 years adjusted for inflation. Now would an average villager, weary of unknown, go for the option of re-skilling (or) would he choose the option of a monthly pension, retire and become a real estate broker? It is easy to see which of these choices would get picked!

There are multiple issues here. Why should the rehabilitation choice be linked to the amended land use purpose? Why can’t it simply be a free choice irrespective of what the government does with the acquired land? Why can’t it incentivize the long-term national policy of re-skilling people and diverting productive human resources to other sectors? These perversions arise out of the “mai baap” worldview that the state knows it all and it is the state’s responsibility to baby sit the subjects for rest of their lives.

Blocking Out Market Mechanisms

There is another dark clause in the LARR Act 2013 that prohibits market based land transactions (technically in excess of 100 acre). This section states that even if the land is directly acquired from the titleholders, the R&R part of the LARR act would still apply. This clause is intended to stop buyers going direct to the market owing to the fear of onerous conditions in the R&R section. Why have such a clause to block market mechanisms? Also why arbitrarily set a limit of 100 acres; especially when a typical gated community, or a mid size factory or a university would require land in excess of that?

If the justification is that the social impact goes much beyond titleholders, then why 100 acres? Why not start with 1 acre? Why not regulate every application of amendment to land use purpose of agricultural land? Whatever is the unspecified rationale of those experts who drafted this act, this arbitrary limit forces the buyers to phase their land requirements to avoid this trap.

However a simple game theoretic analysis reveals that affected people (or NGOs in that area) can quickly see through this ploy. So as soon as the projected requirement hits 70 acres or 80 acres, people are going to hold out assuming that the buyer is phasing the requirement. The sellers have no incentive of letting the market transaction go through, because if they hold out they can get four times the market value of the same land. Hence both clever buyers phasing the requirement (and) genuine buyers in need of land lesser than 100 acres, will suffer. The only Nash equilibrium for this situation is a NO-GO for market transaction when the total requirement is suspected to exceed 100 acres.

Hence LARR Act 2013 perversely blocks market transactions, even on the basis of a mere suspicion and forces buyers (perfectly capable of buying via market mechanisms) to instead approach the government for acquisition. This will hit the economy massively.

The Social Audit Trap

The term social audit is misleadingly used by analysts to describe what is defined in the LARR Act as social impact and public purpose assessment. An audit is a non-intrusive retrospective exercise to measure effectiveness of a process; but this is anything but an audit.

One would assume the government does its homework in terms of assessing the public welfare of a particular project proposal, much before involving itself in the process of land acquisition. One can even argue that this assessment is unnecessary when the government is compensating over the roof on any equivalent market transaction. Assuming it is required, it is in fact the government (with access to all relevant experts from diverse multi-disciplinary fields) that is best placed to decide the larger public welfare arising from a particular project.

The whole notion of public purpose/welfare is utilitarian in its definition and can only be performed at a macro level where visibility exists to all the beneficiaries and affected parties. For example, a hydro-power project may be based in Himalayas, but the consumers of electricity could be located in a far away metro like Delhi. However for some bizarre reason the LARR Act leaves the assessment of public purpose/welfare to a local committee. This is like setting up a process to fail by its sheer design!

Among other things this local committee is expected to assess the public welfare of the project, whether the land requirement is absolute bare minimum for the project, and whether alternate sites have all been evaluated. How on earth can a local committee perform this assessment in an unbiased manner?

The joke gets bigger when one looks at the constitution of the committee; two social scientists, two local body reps, two experts in rehabilitation and one technical expert on the project. Even a novice can see that social scientists and experts in rehabilitation are nothing but euphemisms for NGOs/Activists.

With the committee biased in a 6:1 ratio, does anyone expect the committee to really make a fair assessment of public welfare? Furthermore, do they have all the information and qualification to make a national level utilitarian trade-off?

The booby-trap goes even further. This committee has just two months to make the GO/NO-GO decision. Also the committee has a free-hand in deciding who exactly constitute the affected people. The skew in the committee is a perfect recipe for favouritism.

Even if it had honest members the committee may only err on the higher side than be balanced with identification of the affected. Also by law they are supposed to identify anyone whose livelihood is remotely connected to the acquired site; including farm labour (permanent/temporary), tenants in the land, artisans, owners of animals grazing the land etc. Now comes the killer clause! This social impact report is valid only for 12 months after submission. The collector may extend its validity by a maximum of 12 more months.

This means the eventual buyer has just maximum 2 years to validate the social impact figures, rework all its project numbers, apply loans /borrow from institutions and deposit the full payment into an escrow account. The full payment is extremely onerous as I am not sure which bank/financial institution will lend this way; especially when there is no guarantee on when the project will see its daylight. Hence if the buyer fails to meet the timelines then the social audit needs to be conducted afresh. It would be interesting to observe how many projects clear this trap and how exactly do they “manage” to achieve this.

The Differential Treatment Trap

The LARR Act covers two broad categories of lands that can be acquired viz. agricultural lands and forest lands. These two categories require differential treatment because of the dynamics involved. It is perfectly fair to differentially treat forest dwellers and scheduled tribes who depend on forest produce. This is because they are not titleholders, plus given their unique socio-cultural background it may be hard for them to migrate and resettle elsewhere.

However for some bizarre reason even within the category of agricultural lands, the LARR Act 2013 proposes a differential treatment for scheduled castes vis-à-vis other communities. A comparison of the R&R terms of differential treatment is listed in the table below.

Line ItemUnreserved communitySC/ST communityPayment Terms80% before possession1/3rd on announcement, 100% before possession.Outside district rehabilitationNo special terms25% extra compensation + 50, 000 Rs one-off payment.Land for Land compensationLand of 1 acre or quantity acquired, whichever is lower.Land of 2.5 acres or quantity acquired, whichever is lower.Subsistence payment3000 Rs per month for 1 year from date of award.An extra lump sum of Rs. 50,000.

It is not very hard to see how this differential treatment can be socially divisive; especially when the affected farmers live together in the same village. Hence it is unreasonable to expect both the communities to be satisfied with the “same” level of compensation. Those familiar with the caste linked socio-dynamics in villages can see this differential treatment as a perfect recipe for jealousy and non-cooperation. Some affected members may even sabotage the whole deal precisely for this reason. This booby-trap is potentially a socio-cultural dynamite that can prevent the land deal going through. This will hit hard especially after the final award has been announced and payments start flowing.

The Land Return Trap

By some miracle let us assume the social audit clears a project, the buyers deposit the full payment within two years and the final award is also announced by the collector. The LARR Act mandates compensation and rehabilitation process to be completed within 18 months from the final award. Until this entire process is completed the act forbids any construction/usage of the land. The government has technically taken possession, but for all practical purposes the land usage rights remain with the title holder. The collector should next form an R&R committee that will oversee the process. This committee is again loaded with “Idea of India” representation from NGOs, women reps, SC/ST reps, local body reps, MP, MLA etc.

There is also another national level monitoring committee and an appellate authority overseeing the process. Not to forget all these administrative expenses are paid by the buyer as a fixed overhead on top of the social impact package. Now if the land is not used within 5 years from the date of final award then the whole land acquisition process gets annulled. The land reverts back to the original owners, plus they also get to keep 40% of the awarded compensation as a disturbance bonus.

Please note at this stage the buyer has made the full payment (and perhaps paying interest to his lenders) but is waiting to take possession of the land to commence operations. Again a simple game theoretic model suggests that there is no incentive for the affected people to cooperate with the process of rehabilitation. The LARR Act specifies strict penalties including monetary fines and jail terms for the buyers and government officials involved in the R&R process. However it is puzzling that there is no prescribed punishment for non cooperation from the seller or other members of the affected community. There will always be some disgruntled or greedy members in every society who want to hold out. They will mentally reconcile only when the buyer starts operations.

When land prices start rocketing after the announcement of the new project, it is a natural human tendency to hold out for higher compensation; especially when one still enjoys all land usage rights. However this clause perversely incentivizes everyone to hold out for 5 years. If they manage to do it, they not only get to keep their lands, but also get 40% of the compensation as a disturbance bonus. If the process restarts after 5 years, the affected people are likely to get in multiples of the original award. And there is no punishment for doing so. So in this perfect world, what does the government expect from the affected people? This booby-trap may especially blow up in the suburbs of fast growing cities.

Overall the R&R part appears to be viciously designed to make the process fail. It perversely incentivizes affected people to become pensioners, it blocks market mechanisms, and it also lays multiple booby-traps to prevent the land deal going through. This will not only bring economic growth to a standstill, but will also increase social strife and uncertainty. Unless the R&R part of the LARR Act is substantially reworked to remove these perverse clauses, there is little hope of any land deal going though in the future.