Towards an Open Land Market: Amendments to the Karnataka Land Reforms Act.
Updated: Jul 9, 2020
Author: Anirudh Goel
In June, 2020, the State Cabinet of Karnataka approved changes to the Karnataka Land Reforms Act, 1961, allowing non-agriculturalists to purchase agricultural land. It has done so by proposing the repeal of Section 79 A, B and C of the act which restricted the ownership of farmland either to agriculturalists or those earning less than Rs 2 lakh per annum from non-agricultural sources. This is in furtherance of amendments passed recently in the month of March providing for the direct purchase of agricultural land from farmers by industrial, housing, educational and other units within a 30-day time frame. Earlier, such a purchase was subject to allotment through an agency of the state government. In most of the Indian states, the direct sale of agricultural land and its conversion for non-agricultural use is still strictly regulated by the state, as several conditions are required to be met and no particular time limit is prescribed for the district collector to approve the transfer. In India, the commonly held notion is that liberalization of the farmland market brings benefit only to the buying industry. This article explains how an open land market which allows for the smooth transfer and conversion of agricultural land with limited state regulation, also helps farmers increase their earning by giving them an opportunity to diversify their investments and look for other sources of income. Treating the Disease, not the Symptom Market failures generate visible consequences. Policy makers are often attracted to reversing those consequences instead of understanding the anatomy of the failure itself and addressing its root causes. In the context of farmers transferring their agricultural land to industrialists, asymmetry of information is one of the market failures wherein the former are often not aware of the true potential of their land and its appropriate price in the market. Besides this, the poor demarcation of boundaries and inaccurate or falsified land records force them to bear a heavy burden (and pay a heavy price!) in producing certified documents that confirm their right, title and interest in the land. This significantly raises the cost of transaction. As a consequence of information asymmetry and high transaction costs, farmers are unable to find the right buyers and realize a fair price for their land. In India, the policy makers tend to reverse this consequence by restrictively regulating the transfer of land instead of addressing the root causes of failure and resolving them. For instance, Sections 4 B, C, and D under the West Bengal Land Reforms Act, 1955, prohibit the conversion of land without the Collector’s approval. It goes on to make conversion without approval an offence punishable with imprisonment up to three years or fine or both. Note that no time limit has been prescribed within which the collector is supposed to approve or reject an application. In the state of Maharashtra, an agricultural land notified as a ‘fragment’ under The Maharashtra (Prevention of Fragmentation and Consolidation of Holdings) Act, 1947, can only be sold or leased to a cultivator of the contagious parcel of agricultural land. Such laws often prove to be counterproductive as they limit the possibilities of better income from diversification of investments or alternative sources. The two instances mentioned above show the trend of treating the symptoms or consequences only while ignoring the actual diseases or root causes, namely information asymmetry and high costs of transaction. The objective should be to treat these two failures by prioritizing two things: 1. Public Information Campaigns: This would involve educating farmers about their legal rights over the land, the potential of land in terms of agricultural productivity and the appropriate price of its sale, tenancy or lease in the market. A well-funded and organized campaign ensures that agriculturists are properly informed, thus diminishing the likelihood of fraud and helping them in bargaining for a fair price for the transaction. 2. Digitization of Land Records: This reduces the cost of transaction for seller agriculturalists by certifying their right, title and interest in the land, and clearly demarcating the land boundaries. The presence of a proper record ensures certainty in transaction to both parties and reduces the possibility of rent-seeking activity by government authorities. Eliminating Barriers to Exit The agricultural economy employs 45 per cent of India’s workforce but contributes not more than 15-20 percent to the national income. In sizable modern economies, one can only expect agriculture to grow near about 4 percent annually. The surplus of rural workforce employed in agriculture should shift to other sectors of the economy in order to ensure their optimum utilization and to increase their per capita income. In a survey conducted by Centre for the Study of Developing Societies in 2014, 76 percent of the farmers preferred to do some work other than farming. Then what is it that ties the poor farmer to her farmland unable to explore better sources of income in other sectors of the economy? A web of archaic laws like the one in Maharashtra as mentioned earlier create permanent barriers for her to exit agriculture and pursue jobs that generate better income. Farmers are often required to obtain a ‘No Objection Certificate’ for changing the way they use land - a cumbersome process which involves taking a number of permissions and offering hefty amounts of bribe. In states like Telangana and Bihar, the leasing of agricultural land is banned altogether although there are some exceptions for widows, minors, defense personnel, etc. Such tenancy laws which require strict compliance or put a blanket ban on leasing, have paved way for the creation of informal tenancy arrangements wherein the land owner is forced to continuously monitor the contract and the tenant farmer is always vulnerable to eviction. In 2016, NITI Aayog came up with a Model Agricultural Land Leasing Act 2016 that facilitates the leasing of agricultural land to marginal landless farmers. It provides a balanced framework which allows the land owning farmer to exit farming and look for better jobs simultaneously giving stability to the lessee farmer. Some states like Uttar Pradesh, Madhya Pradesh and Maharashtra have amended their laws in line with the model act. The history of farmland regulation in India is one of good intentions but unintended consequences. Welfare initiatives often induce outcomes that are quite different from what was originally anticipated. Restrictions on land transfer intended against unfair contracts end up limiting possibilities of income and strict tenancy laws intended to protect the tenant end up in formulation of informal arrangements. It is because of a paternalistic approach of the State that these laws continue to pervade the agricultural economy despite their repeated failures. This can only change if the State starts looking upon the farmer with trust and acknowledges that she is conscious of her interest. Sometimes, it is in her best interest to exit agriculture and barriers should not be created against this exit through unnecessary intervention. Thus, changes in Karnataka law allowing for conversion and direct sale of agricultural land to the industry is a step in the right direction and other states should follow the same. [The author is a fourth year student enrolled in the five-year B.A. LL.B. program at National University of Juridical Sciences, Kolkata.]
Notes and References
 The Hindu, Changes to Karnataka Land Reforms Act to allow non-agriculturalists to buy farmland, June 12, 2020, available at https://www.thehindu.com/news/national/karnataka/changes-to-karnataka-land-reforms-act-to-allow-non-agriculturists-to-buy-farmland/article31807821.ece (Last visited on July 2, 2020).  Id.  To know more, refer Investopedia, Market Failure, available at https://www.investopedia.com/terms/m/marketfailure.asp#:~:text=Market%20failure%20is%20the%20economic,rational%20outcomes%20for%20the%20group (Last visited on July 7, 2020).  Robin Mearns, Access to Land in Rural India: Policy Issues and Options 24 (World Bank Policy Research Working Paper 2123, May 1999).  Id.  Ministry of Finance, Economic Survey 2019-20.  The World Bank, Agriculture, Forestry, and Fishing, Value Added (Annual Growth %), available at https://data.worldbank.org/indicator/NV.AGR.TOTL.KD.ZG (Last visited on July 6, 2020).  Lokniti-CSDS, State of Indian Farmers, available at https://www.lokniti.org/otherstudies/state-of-indian-farmers-161 (Last visited on July 6, 2020).  Livemint, India needs to trust its farmers and set them free, March 20, 2018, available at https://www.livemint.com/Opinion/Ur1gpECTWdd3VnbpuuUD9O/India-needs-to-trust-its-farmers-and-set-them-free.html (Last visited on July 7, 2020).  NITI Aayog, Report of the Expert Committee and Model Law on Agricultural Land Leasing 2, October, 2016, available at https://niti.gov.in/sites/default/files/2020-05/Report-of-the-Expert-Committee-and-Model-Law-on-Agricultural-Land-Leasing.pdf (Last visited on July 7, 2020).  Supra note 9.  Supra note 10, 13.  Business Standard, A few states move towards model agricultural land leasing Act: Official, available at https://www.business-standard.com/article/news-ians/a-few-states-move-towards-model-agricultural-land-leasing-act-official-118112301020_1.html (Last visited on July 7, 2020).