Land leasing will be a win-win reform for states

By Arvind Pagariya

Land leasing laws relating to rural agricultural land in Indian states were overwhelmingly ected during decades immediately following the independence. At the time, the abolition of Zamindari and redistribution of land to the tiller were the highest policy priorities.

Top leadership of the day saw tency and sub-tency as integral to the feudal land arrangements that India had inherited from the British. Therefore, tency reform laws that various states adopted sought to not only transfer ownership rights to the tent but also either prohibited or heavily discouraged leasing and sub-leasing of land.

Politically influential landowners were successful in subverting the reform, however. As P.S. Appu documents in his brilliant 1996 book Land Reforms in India, till as late as 1992, ownership rights were transferred to the cultivator on just 4 percent of the operated land. Moreover, just seven states, Assam, Gujarat, Himachal Pradesh, Kartaka, Kerala, Maharashtra, and West Bengal, accounted for some 97 percent of this transfer.

In trying to force the transfer of ownership to the cultivator, many states abolished tency altogether. But while resulting in minimal land transfer, the policy had the unintended consequence of ending any protection tents might have had and forced future tents underground.

Some states allowed tency but imposed a ceiling on land rent at one-fourth to one-fifth of the produce. But since this rent fell well below the market rate, contracts became oral in these states as well, with the tent paying closer to 50% of the produce in rent.

Many large states including Telanga, Bihar, Kartaka, Madhya Pradesh and Uttar Pradesh ban land leasing with exceptions granted to landowners among widows, minors, disabled and defence personnel. Kerala has for long banned tency, permitting only recently self-help groups to lease land. Some states including Punjab, Harya, Gujarat, Maharashtra and Assam do not ban leasing but the tent acquires a right to purchase the leased land from the owner after a specified period of tency. This provision too has the effect of making tency agreements oral, leaving the tent vulnerable. Only the states of Andhra Pradesh, Tamil du, Rajasthan and West Bengal have liberal tency laws with the last one limiting tency to sharecroppers. A large number of states among them Rajasthan and Tamil du, which otherwise have liberal tency laws, do not recognize sharecroppers as tents.

The origil intent of the restrictive tency laws no longer holds any relevance. Today, these restrictions have detrimental effects on not only the tent for whose protection the laws were origilly ected but also on the landowner and implementation of public policy. The tent lacks the security of tenure that she would have if laws permitted her and the landowner to freely write transparent contracts. In turn, this discourages her from making long-term investments in land and also leaves her feeling perpetually insecure about continuing to maintain cultivation rights. Furthermore, it deprives her of potential access to credit by virtue of being a cultivator.

Landowner also feels a sense of insecurity when leasing land with many choosing to leave land fallow. The latter practice is becoming increasingly prevalent with landowners and their children seeking non-farm employment.

Public policy too faces serious challenges today in the absence of transparent land leasing laws. There are calls for expanded and more effective crop insurance. Recognizing that such insurance is likely to be highly subsidized, as has been the case with the past programmes, a tural question is how to ensure that the tent who bears the bulk of the risk of cultivation receives this benefit.

The same problem arises in the face of a tural calamity; if tency is informal, how do we ensure that the actual cultivator receives disaster relief.

In a similar vein, fertilizer subsidy today is subject to vast leakages and sales of subsidized fertilizer in the black market. In principle, these leakages could be sharply curtailed by the introduction of direct benefit transfer (DBT) using Aadhar seeded bank accounts along the lines of the cooking gas subsidy transfer. But in face of difficulty in identifying the real cultivator and therefore intended beneficiary, DBT cannot be satisfactorily implemented.

In the context of the difficulties in land acquisition under the 2013 land acquisition law, states wishing to facilitate industrialization can further benefit from liberal land leasing if they simultaneously liberalize the use of agricultural land for non-agricultural purposes.

Currently, conversion of agricultural land for non-agricultural use requires permission from the appropriate authority, which can take a long time. State governments can address this barrier by either an amendment of the law to permit non-agricultural use or by the introduction of time-bound clearances of applications for the conversion of agricultural land use in the implementing regulations.

The reform open up another avenue to the provision of land for industrialization: long-term land leases that allow the owner to retain the ownership while earning rent on her land. In addition, she will have the right to renegotiate the terms of the lease once the existing lease expires.

Therefore, the introduction of transparent land leasing laws that allow the potential tent or sharecropper to engage in written contracts with the landowner is a win-win reform. The tent will have an incentive to make investment in improvement of land, landowner will be able to lease land without fear of losing it to the tent and the government will be able to implement its policies efficiently.

Simultaneous liberalization of land use laws will also open up an altertive avenue to the provision of land for industrialization that is fully within the state’s jurisdiction and allows the landowner to retain ownership of her land.

A potential hurdle to the land leasing reform laws is that landowners may fear that a future populist government may use the written tency contracts as the basis of transfer of land to the tent and therefore would oppose the reform. This is a genuine fear but may be addressed in two altertive ways. The ideal way would be yet another major reform: giving landowners indefeasible titles. States such as Kartaka that have fully digitized land records and the registration system are indeed in a position to move in this direction. For other states, such titles are a futuristic solution.

Therefore, in the interim, they can opt for the altertive solution of recording the contracts at the level of the Panchayat eschewing acknowledging the tent in the revenue records. They may then insert in the relevant implementing regulations the clause that for purposes of ownership transfer, only the tency status in revenue records would be recognized.

State governments must seriously consider revisiting their leasing (and land use) laws to determine if they could bring about these simple but powerful changes to enhance productivity and welfare all around. We, at the NITI Aayog, stand ready to assist them in this endeavour.

( Arvind Pagariya is vice chairman of NITI Aayog. The article has been picked from his blog, which is also available at www.niti.gov.in)