Recently a blog entry by an entrepreneur, Rohan Shah, wherein he described his ordeal of obtaining a land conversion NOC (No Objection Certificate) from the government of Maharashtra gained significant traction and served the purpose of highlighting the true ease of doing business in one of India’s most important industrialized States.

The blog entry gave us good reason to highlight some of the measures taken by the Government of Karnataka to eliminate/reduce such problems in Karnataka.

It is important for us to note that while Karnataka contributes a significant portion to India's GDP, most of it is through the service sector i.e., the IT-ITes exports and more. The state has a long tradition of supporting the IT-ITes sector through developing plug-and-play infrastructure in partnership with the private sector in the form of Electronic City, ITPL and more.

The state also has the KIADB i.e Karnataka Industrial Area Development Board to perform the role of developing industrial estates and plug-and-play infrastructure for the manufacturing sector.

However, as with many other government bodies, the KIADB is slow in responding to industry needs and has historically been subject to the usual political pressures in land allotment, thus inducing a shortage in the availability of quality industrial land in the state. It needs to be noted that this outcome is not Karnataka-specific and is common to most States in India.

Unlike other states, the government of Karnataka, through it’s New Industrial Policy has announced that it will be changing this by encouraging the development of private industrial estates across the State.

The only option for entrepreneurs and companies who want to set up manufacturing units outside the industrial estates historically has been to go through the Industries Department and the District administration and purchase agricultural land (either directly or under various Land Acquisition Acts), apply for conversion of this agricultural land under Section 109 of the State Land Reforms Act, obtain approval from the State government and/or the Deputy Commissioner and then start construction of the unit.

This process was in effect filled to the brim with requirements of all sorts of NOCs and was nothing short of a bureaucratic nightmare which even Kafka would have found difficult to conjure.

It is important for us to remember that well functioning rural land markets, especially around existing urban centres, are essential to kickstart sustained manufacturing growth in any region. In Karnataka, like many other States, these markets have been handicapped by the Land Reform Acts of the 1960s and 1970s along with other legislations passed with the intent of safeguarding the interest of farmers, scheduled castes, tribes, and other protected groups.

Karnataka, which was a leader among Indian states in pushing through the land reforms legislations in the 1960s and 1970s, has once again taken upon itself to lead the way in bringing significant land reforms in order to enable the efficient and transparent functioning of rural land markets. These reforms also have the potential to bring in place high levels of transparency and significantly reduce corruption in the entire process. Before we delve into the details of these reforms, it would be of merit to understand the background of the same.

The context

In 1974, the then INC Chief Minister of Karnataka and the political guru of former CM Siddaramaiah, D Devaraj Urs came out with the policy of ‘Land to the Tiller’ and introduced a series of restrictions on land ownership and transfer in the State through the Karnataka Land Reforms Act.

The objective of this legislation was to:

a. ensure that the ownership of agricultural land was given to the cultivator and not to absentee landlords or city dwelling rich merchants.

b. Reduce land ‘hoarding’ i.e., excessive land ownership by rural elites (mostly from the Vokkaliga, landed Lingayat castes and Brahmin communities).

These legislations also prevented persons beyond a specified non-agricultural income limit from owning, inheriting or purchasing agricultural land. Despite the best of intentions, these restrictions have served no purpose apart from enriching the pockets of the lower bureaucracy and progressively reducing the size of landholdings in the State. The red-tapism that thus ensued has also resulted in insurmountable hindrances for industries and entrepreneurs to purchase and utilise land.

Over the years, different administrations have attempted to alter the provisions of the law. The most significant of the amendments would be those of the years 2015, 2016, and 2017.

a. The 2015 amendment by the then INC government, raised the limit on income obtained from non-agricultural sources, for persons to qualify for the purchase of agricultural land, from Rs 2 lakhs to Rs 25 lakhs. It also increased the extent of units of land subject to exemptions under Section 109 of the Act.

b. In 2016, the INC government, noting its inability to buy even small portions of agricultural land, amended the Act to allow the government to purchase land up to hundred acres for public purpose projects.

c. In 2017, the INC government amended the Act to give legal backing to the idea of ‘Land to the Dweller’ and regularised the dwelling places of landless agricultural labourers who had settled in habitat clusters.

It is worthwhile to note that the HD Kumaraswamy government, despite having opposed the 2015 amendment in the assembly, considered removing the income barrier. The Revenue and Industry Departments were in support of the move, while the Agriculture Department along with the Karnataka Rajya Raitha Sangha opposed it.

The BS Yediyurappa-led BJP government which came to power in July 2019, in its first year has overhauled these rules in two phases.

The first phase involved making the land conversion process transparent and was done through an amendment to the Land Reforms Act passed in the assembly.

The second phase involved making the land markets efficient by removing many of the sections in the Land Reforms Act which were unimplementable but still on the books and simultaneously updating and rationalizing others. Let us now take a closer look at the same.

Phase 1 - Amendment of Section 109

On 27 April 2020, the BJP-led State government gazetted the Karnataka Land Reforms (Amendment) Act, 2020 amending Section 109 of the Act.

a. Position before the amendment: Section 109 subsection (1) clause (i) empowered the State government or the Deputy Commissioner, to exempt by notification for industrial development, any land upto 20 units in the case of the State government and 10 units in case of the Deputy Commissioner from the provisions of the Sections 63, 79A, 79B and 80.

These provisions imposed a ceiling on ownership of land as well as restricted the purchase of agricultural land by persons from non agricultural backgrounds and more. The exemption to these conditions were to be provided through the offices of the Deputy Commissioner or through the State Revenue Department.

After the amendment: The amendment vastly increased the extent of land that can be exempt from sections 63, 79A, 79B and 80 for industrial development from 10/20 units to 40 units, provided the industry obtains approval of the State High level Clearance committee or the State level Single Window Clearance Committee constituted under the Karnataka Industries (facilitation) Act, 2002.

Impact: The amendment allows entrepreneurs and investors to purchase and convert upto 40 units of land through an NOC-free process by just obtaining the approval of the State Level Single Window Clearance Committee.

It is noteworthy that the new rules framed under this amendment allow industries to apply for such an approval through the portal of the State’s nodal agency - Karnataka Udyog Mitra. After an application is made, the Industries Department through the Udyog Mitra shall be the interface between the investors and the District administration to ensure smooth transfer of ownership and start of operations.

b. Position before the amendment: As per Section 109, subsection (2), if any entity contravenes the condition or restriction upon which the exemption was obtained, it would lose the said exemption and penal provisions would be invoked ensuring the compulsory re-transfer of land to the State government for no compensation.

After the amendment: The amendment provides that if any company or organisation does not use the land for any reason whatsoever and if the land was purchased by obtaining exemption under this section, it can sell the land to be utilized for the same purpose it purchased it for. However it can do so only after it has utilised the said land for at least 7 years.

Impact: Before the amendment, any change in the conditions/restrictions put in place to provide the exemption, which may include everything from the ownership structure of the holding company to the pattern of usage of the land, would be said to violate the terms of the exemption and thus enable the government to acquire the land at zero compensation.

Moreover, if after the land unit was purchased and converted, the investment failed for any reason, the enterprise to which the exemption was granted to enable the purchase would have been penalized and the land would have been forcefully reacquired at zero compensation - in effect an extraordinary punishment for failure. This provision was nothing short of being insane for no sane Stat country looking to attract investments and promote manufacturing would ever have such provisions.

After the amendment brought in by the BJP government, the law now provides for the sale of purchased land by the company after seven years of operation as long as the land is utilised for the same purpose after the sale. This is particularly helpful when industries pass through difficult times and are left with few options but to sell assets in order to clear debts to improve their financial health. While this seven- year restriction too is unseemly, it is still much better than the conditions which existed before the amendment.

Phase 2 - Promulgation of the Karnataka Land Reforms Amendment Ordinance (July 2020)

The Karnataka government gazetted the Karnataka Land Reforms Amendment Ordinance (2020) on 13 July. This ordinance introduced a number of changes. It amended the sections 63 and Section 80 while it repealed the sections 79A, 79B, and 79C.

a. Section 63

Position before the Ordinance: According to Section 63, the ceiling area of land for a person who has no family or is not part of a family and for any family with less than five members was 10 units. It further provided that in the case of a family consisting of more than five members the ceiling area would be ten units plus an additional two units for every member in excess of five, with an aggregate limit of twenty units. Additionally, it also instituted a ceiling on the land leased by a tenant to forty units.

After the Ordinance: Section 63 was amended to double the ceiling area of land for a person who has no family or is not part of a family and for any family with less than five members to 20 units from the previous 10 units.

It expanded the aggregate limit for families consisting of more than five members to 40 units from the previous 20 units (an additional 4 units per person). It also expanded the ceiling on the total land leased by a tenant to 80 units from the previous 40 units.

Impact: The amendment effectively doubled the ceiling on the area of land allowed to be owned in Karnataka from 10 units per person and 20 units per family, on aggregate, to 20 units per person and 40 units per family on aggregate.

The ceiling on leasing of land has been doubled from the original 40 units to the current 80 units. This is expected to allow for an increased consolidation of land holdings in the State while at the same time increasing the size of the market for agricultural land pulling up the price of agricultural land in the State and consequently, the wealth of the land-owning farmers.

b. Section 79 A

Position before the Ordinance: Section 79 A prohibited the acquisition of land by purchase or inheritance- whether as landlord, landowner, tenant or mortgagee - by certain persons/family above a threshold of annual income from sources other than agriculture.

During the tenure of CM Siddaramaiah, the limit of permissible, non-agricultural income was increased from the paltry Rs. 2 Lakh to Rs. 25 Lakh.

The INC- JDS coalition government led by HD Kumaraswamy considered the complete removal of the income limit. Though the move was endorsed by the Revenue and Industry Departments, the government faced stiff opposition from both the Agriculture Department and the Karnataka Rajya Raitha Sangha.

This section placed the responsibility on the person who acquired land in contravention to the section or by inheritance or bequest to submit to the Tahsildar particulars of the said land. The Tahsildar would after an enquiry send the details to the Deputy Commissioner who then by notification could transfer the said property to be transferred to the ownership of the State government. Only for the land transferred to the State government after it was acquired by inheritance or bequest would a prescribed amount be paid. And where the acquisition was otherwise than by bequest or inheritance, no amount would be paid.

After the Ordinance: This entire section was omitted.

Impact: 79A essentially prevented the legal inheritance of land by an individual whose income was higher than Rs 25 Lakh. This amendment will help many existing farming families who have children working in the IT/manufacturing sector and are able to earn a good living for themselves to retain their land holdings without having to pay a penalty for their hard work.

79A had effectively put in place the requirement of the Record of Rights, Tenancy and Crops document i.e., the RTC certificate for the transfer/sale or purchase of agricultural land. This had led to a thriving trade in fake RTCs usually run by the lower bureaucracy of the District Commissioner's Office.

Additionally, a significant amount of land disputes arose due to the implementation of this provision whose original text had vast scope for misuse. The omission of this section will further broaden the participation in the agricultural land markets of the State, pulling up the price of agricultural land in the State and consequently, the wealth of the land owning farmers.

Further, it will reduce the scope of government officials in the lower bureaucracy trying to fund their daughters wedding through issuing fake RTCs.

c. Section 79B

Position before the Ordinance: This section prohibited the holding of agricultural land by non-agriculturalists. It declared that no person other than a person cultivating land personally shall be entitled to hold land. It had a retrospective effect and had placed the responsibility of submitting to the Tahsildar particulars of the land on such entities who held land they were disentitled to hold after the commencement of the Act. The Tahsildar would after an enquiry send the details to the Deputy Commissioner, who then by notification could transfer the said property to the ownership of the State government. For the land thus transferred to the ownership of the State government, a prescribed amount would be paid.

After the Ordinance: This entire section has been omitted.

Impact: A major impact of this section was that there could be no direct purchase of land by an entrepreneur, business, investor or even a Farmers Producers Organisation (Section 79B allows Farmer Co-Ops to purchase land but FPOs are registered under the Companies Act).

As a result, every minor acquisition of land (even as small as two acres) by industries, cooperatives or trusts had to be routed through the office of the Deputy Commissioner. Additional requests had to be then put in to allow for the conversion of land use from agricultural to commercial or industrial.

One of the authors (Shreyas), knows of an instance wherein a charity home for mentally disabled people was forced to request the DC's office in Mysuru to permit them to acquire land in Mysuru district as well as permit the change of land use. The local DC’s office gave them a run around despite requests from the local MLA through the frequent loss of necessary paperwork.

The Ordinance has now allowed the direct purchase of land by institutions in the State without having to go through the DC’s office and savoring the frequent loss of paperwork and payment of ‘file movement charges’.

d. Section 79C

Position before the Ordinance: This section provided for penalties to be imposed when a person fails to furnish details as required under Section 79A and 79B.

In such a situation, the Tahsildar could, after issuing a show cause notice, impose the prescribed penalty and order for the furnishing of details within a month. If the person fails to comply with such an order, his right, title and interest in the land concerned could as penalty, be forfeited to and vest in the State Government.

After the Ordinance: This section was completely omitted.

Impact: The amendment will help farmers from being exploited by the lower bureaucracy which could potentially make use of every opportunity to extort them claiming non-compliance of sections using Section 79 A and Section 79B.

Usually, notices under this section were given to politically active farmers from any party other than the party to which the local Tehsildar owed allegiance to. The farmer who would be subject to this would either have to make a distress sale or pay up or go to the judicial system for relief.

Successful recovery of land by the government is extremely rare and in fact borders on the negligible, proving the fact that the sole purpose for the existence of this provision was for extortion of farmers.

To illustrate this usage of the section, let us take the case of a Tehsildar in a taluk of Mysuru district owing allegiance to a local party of the State. If this Tehsildar receives ‘'advice' from a leader of the said party to 'properly examine' the case of a local opposition party leader with around 10 units of land who recently transferred this land to his only son - currently earning Rs. 30 Lakh per annum in an IT company in Mysuru city (Rs. 5 Lakh more than the prescribed limit as per Section 79 A), the Tehsildar could easily issue a notice under the Act and even seize it if the said local party is in power at the State level.

e. Section 80

Position before the Ordinance: This provision prohibited the transfer (sale or mortgage) of agricultural land to non-agriculturists; with the Assistant Commissioner authorised by the State government to grant permission for such sale, gift, or exchange of any area to a transferee who has a bona fide intent of taking up agriculture and and does so within three years after the transfer. This was with the condition that if the transferee gives up agriculture within five years, the land shall be transferred to the ownership of the State government subject to an appropriate payment to him.

After the Ordinance: The amendment allowed for transfer of land to non-agriculturists with transfer being prohibited in case of A-class irrigated land to persons who do not intend to use it for agricultural purposes. A-class lands are lands having facilities for assured irrigation from such government canals and government tanks as are capable of supplying water for growing two crops of paddy or one crop of sugarcane in a year.

Impact: This amendment effectively enabled the sale of land to non-agriculturists by omitting the provisions that had made only agriculturists or agricultural labourers eligible. The only restriction on the transfer of land was placed in case of A-class irrigated lands and that too for non-agricultural purposes. A-class irrigated land is more or less the holy grail of land reforms legislation and hence politically untouchable.

With this ordinance, the saga of trying to prevent non-agriculturalists from 'buying up land' has finally been put to an end. Despite the continued existence of ceilings on land purchase and ownership (Section 63), the amendment of these provisions are expected to increase the participation of buyers in the rural land markets of the state.

Earlier restrictions had prevented the agricultural land markets from working properly by artificially deflating the price of agricultural land, thus reducing the net worth of the farmers. This measure will also help farmers get better prices for their land and might even encourage young people to take up agriculture as a profession, which they were unable to do before thanks to the restrictions.

An optimistic future

To sum it up, no State in India has achieved the kind of progress in land reforms that Karnataka has. These steps of the government of Karnataka will increase the participation of buyers and dwellers in the rural land markets of the State and increase the wealth of agricultural land owners. This will not only increase the efficiency of the land markets but at the same time reduce corruption and make it easier for industries, especially manufacturing units to purchase land for their operations.

Once these measures are comprehensively implemented, by the end of this year a scenario like the one mentioned in Mr Shah’s blog entry is unlikely to exist in Karnataka.

It is interesting to note that these reforms have been pushed through in a State which in business circles is known as being a 'bureaucrat-run state' unlike the politician-run states of Tamil Nadu, Andhra Pradesh and Maharashtra.

Chief Minister BS Yediyurappa has been able to deliver on the promise he made during his visit to the Davos World Economic Forum in November 2019 - make it easy and transparent for industry to buy land in the State directly from farmers.

These reforms have been made possible only through careful navigation through the bureaucracy by the CM's administrative right hand, Deputy Chief Minister Dr. CN Ashwathnarayana. More than anything else, these reforms prove that Chief Minister BS Yediyurappa is a man of his word and is committed to economic growth and manufacturing-led job growth in the State.

Shreyas Bharadwaj and Adithi Gurkar

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