After a long and bruising battle to steer an industry-friendly land acquisition law through India’s Parliament, Prime Minister Narendra Modi’s government finally waved the white flag last month. In August, Modi announced in a radio programme that the government would not reissue a land acquisition ordinance (a temporary law that the government can promulgate through executive fiat without Parliamentary approval) in place of a more permanent bill that is stuck in Parliament.

 

Narendra Modi was voted into power in May 2014 on the promise of providing jobs and spurring manufacturing. The provision of land at reasonably cheap rates for the construction of infrastructures and the settlement of factories was considered as a key enabler to spur economic growth in the country. Nevertheless, land acquisition laws in India have always been contentious.

 

Until two years ago, the process was governed by a colonial-era law which neither required consent from owners for land acquisition nor provided for rehabilitation after dispossession. The Land Acquisition Act of 1894 proved inadequate for a globalizing Indian economy where land has appreciated significantly. The mismatch between the law, which vests eminent domain entirely with the government, and landowners’ wishes has led to violent conflicts in different parts of the country over the last 20 years.

 

The previous Congress government in New Delhi replaced the 1894 law with a new bill two years ago. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 said that acquisitions need the consent of at least 70 percent of landowners, while ensuring rehabilitation for the dispossessed. It provided for compensation ranging from 2-4 times the price of the land acquired. Moreover, it required a social impact assessment for most projects. Predictably, landowners welcomed the Act while industry viewed it as a disaster, saying that it was now virtually impossible to acquire land.

 

One of Narendra Modi’s key election promises last year was “Development”, which the government has defined as the need to boost domestic and foreign investment in the economy. Modi wants to turn India into a manufacturing hub on par with China and Southeast Asia.

 

In its economic history, India largely skipped manufacturing and went straight to services. Indian economy consists of an agriculture sector that employs 50 percent of the population and contributes 15 percent to the GDP, manufacturing, and services, including skills intensive ones such as information technology, communications and banking, which employ a miniscule number of the nation’s 1.25 billion people. Now, manufacturing is seen as the sponge that can provide jobs on the scale that India needs.

 

Accordingly, Modi’s government came up with a “Make in India” plan to increase the share of manufacturing to 25 percent by 2022 from the current 16 percent. That requires factories and industrial corridors, which need land. Further, manufacturing makes intensive use of water and needs good infrastructure. Unfortunately, the majority of India’s most fertile agricultural land is located where factories are supposed to be settled.

 

Modi’s government tried to amend the Law to make land acquisition easier by removing the consent clause from five categories of land use (including industrial corridors and infrastructure), waiving the need for social impact assessments and removing the limits on agricultural land for these categories. The amendments also allowed land acquisition for private hospitals and educational institutions.

 

Industry welcomed the amendments with the biggest lobby group saying that it would boost the infrastructure goals of the nation. Meanwhile farmers, who voted for Modi, were upset with the proposals and turned out in large numbers for demonstrations, which were called by opposition parties. Albeit Modi rammed the amendments through in the lower house of Parliament due to his coalition’s brute majority, they stuck in the upper house.

 

Indian farmers find hard to part with their land because, for a large majority, it is their only asset. The size of most Indian agricultural holdings is small and shrinking – per capita availability of agricultural land fell from 0.34 hectares in 1950-51 to 0.12 hectares in 2010-11 according to figures quoted by Christophe Jaffrelot in the Indian Express Newspaper. It is, nevertheless, the only option for most people because they do not have the skills to work in any other job.

 

They supplement their meagre farm income with casual, minimum-wage jobs in far off cities throughout the country. As if this were not enough, once their land is dispossessed, experience tells them that promises are worth nothing.

 

For instance, the record of companies acquiring land doesn’t inspire confidence either. An attempt by the previous government to boost China-style Special Economic Zones in 2005 ended up with the land being used mostly for real estate speculation. In a 2014 report, the government auditor said that only 9.6 percent of SEZs were devoted to manufacturing. The audit found that developers had profited through the appreciation of land.

 

India’s economy relies more on domestic consumption than exports. Business caters to this by building luxury condominiums and other items of consumption whose base rests on land. This, in turn, creates resentment among the dispossessed who see their land being re-sold for vast sums.

 

India needs to industrialize, but in an equitable and just way. The payoff between industrialization and food security is something that laws governing land acquisition will have to negotiate carefully.