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The question of land for SEZs

There is a growing consensus that promoters of special economic zones should

buy land through negotiation with farmers rather than expect it to be acquired

by government, says Prabhu Ghate

EXPERIENCE with each new SEZ allows one to test and modify the accumulating

wisdom on how to go about setting them up. One of the more interesting and largest

SEZs under implementation is that coming up as part of MIHAN, or the Multimodal

International Airport Hub at Nagpur —  a huge, composite, international air cargo, rail

and road terminal project under construction to take advantage of Nagpur’s location at

the crossroads of the country. Nearly everyone in Nagpur welcomes the project, including the approximately

1,500 families, in four villages, whose land is required to contribute to the roughly

4,500 hectares required. Many of them gave up farming as their main source of

income some time ago, finding dairying more profitable, selling off some of their land

for housing, and working in manufacturing or service sector jobs. They are looking

forward to the employment and training in new skills that has been promised, and are

not unhappy about moving to a housing colony being developed for them closer to

town. As in some other SEZs, however, there is a strong sense of grievance about the

compensation being offered for their agricultural land, with opposition galvanised bya local farmer leader from the largest village, Shivangaon, where one happens to have

inherited a house and a little land. So I write this as a PAP (project affected person)!

There is a growing consensus that SEZ promoters should buy land

through negotiation with farmers rather than expect it to be acquired. The promoter

here, given the airport expansion component, is the Maharashtra Airport Development

Corporation. A government company may be thought to lack the savvy and quick

decision-making ability required to negotiate land purchases, but the Maharashtra

Industrial Development Corporation, also a government company, has reportedly been

successful in persuading about the same number of villagers to sell their land for a

multi-product SEZ in Pune district with Bharat Forge as the anchor unit. The

willingness of the farmers to sell there may be due to the much higher price reportedly

 being paid for their land, although it is arid and uncultivated. Be that as it may, land

for MIHAN including the SEZ is being acquired for MADC by the state government

under the land acquisition Act. Since the cost of compensation paid to farmers is not

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 being passed on to the project, it represents a subsidy to units in the SEZ borne by the

taxpayer (and shared by the farmer to the extent the compensation fails to reflect true

market value).

The usual difficulty cited with respect to voluntary land sales is the possibility of

delays caused by hold-outs. To get over this problem, one could conceivably hold aseries of polls to determine the price at which a certain percentage of farmers, say

70%, would be willing to sell, and rely on compulsory land acquisition powers for the

rest of the land. However, to prevent collusion and ensure that the results reflect the

true reservation price of each farmer, the promoter would have to be able to hold out

the credible threat of taking the project elsewhere.

In the case of location-specific infrastructure projects such as this one, this may not

always be possible, although the Maharashtra chief minister has held it out as a

 possibility. Simultaneously, as a sweetener, the state government has upped its offer

to include a plot of developed land elsewhere, to the extent of 12.5% of the land

acquired. This form of compensation minimises the cash outgo for the state

government, and has upside potential for the farmer, but over an uncertain period.

Although welcome, it has proved insufficient to induce the farmers to give up their

demand for much higher cash compensation than is on offer.

THE main problem is establishing the market value of the land (which is necessary

whether the land is acquired compulsorily or purchased through negotiation) is not

knowing the counterfactual —  what would the value of the land have been in the

absence of the project? Large projects such as this affect land prices for miles around.Faced with this difficulty, the revenue authorities tie the acquisition price rather

mechanically to stamp duties assessed on sales at the time the project was first

mooted. This is unfair, because it penalises persons for land undervalued by others so

as to save on stamp duty. Secondly, it understates the increase in land in values that

would have taken place even without the project, especially in an area barely 10 km

from a large city pressing outwards in search of land for housing.

Frequent changes in the scope and scale of the project add further to the delay after

a project is first mooted or notified. Some of the land now going to MIHAN was

acquired for the air force some time ago, for facilities to service heavy transport

aircraft under the Gajraj project. This land is now required for a new runway, and

further land has to be acquired to shift Gajraj to a new location within the project

area.

Another part of the area was acquired as early as 1988-89, for an MIDC industrial

area planned before MIHAN was conceived. One can imagine the anguish of a farmer

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whose land was acquired almost ten years ago for about Rs 1 lakh per acre seeing his

land now being auctioned off at Rs 70 lakh in the “non- processing” part of the zone,

where about 80 hectares is being set aside for a health city with 11 super-specialty

hospitals, a housing township and an international school.

Although these facilities will all add to the attractiveness of the zone to the unitsand to its viability for the promoters, their main users and beneficiaries will be the

local well-to-do, and it is questionable whether they come within the meaning of

 public purpose under the land acquisition Act. For these uses at least voluntary land

 purchases should be mandatory.

Finally, much greater transparency and better communication is required about

 project intentions and plans on the part of both project and land revenue authorities.

Affected persons are required to live under uncertainty for years. The net benefit of a

 project can only be assessed independently through detailed costbenefit analysis. For

this purpose the detailed project report (DPR) should be available as public

information, instead of just a project summary on the web.