A harried commerce minister wrongly responded to the concerns of farmers by stating that the current SEZ initiative could hurt those who are giving up their land. The SEZ initiative is certainly not the first best option to promote exports of manufactured goods from India. That should have been the pursuit of an export-led growth strategy. SEZs are not even the second best option. The second best initiative would be to reduce taxes on energy and impose zero VAT on all exports. Be that as it may, the SEZ initiative still has the potential to accelerate exports and investments. Even if a fifth of all the investments that are being estimated fructifies, all the effort and the changes in land use would be worth it.

The concerns of landowners and farmers would also have to be addressed. This is technically not the Commerce Ministry’s problem as has been often stated by the minister. However, the minister can definitely flag the issue and suggest corrective steps. Unfortunately, within the government and even among politicians, the tendency is to think in terms of speeding up acquisition without correcting the perversities. It is not an issue of a slow-moving bureaucracy. Banning the use of agricultural land for SEZs is not the answer, either. Some SEZs, especially those planned near cities and requiring access to urban centres, would need agricultural land. The crucial issue is that the acquisition should be fair so that current owners, especially farmers, receive a higher value for their land. Unfortunately, this is not possible under current law and procedure for land acquisition.

The major problem is that the government is both the authority that identifies the land for acquisition and the body that grants exemptions with regard to use of land. Because of this, large variations are often witnessed between the pre-acquisition market price and the post-acquisition price. Since the pre-acquisition price does not incorporate the probability of the land use being changed, is usually goes up by a factor of ten. Naturally, farmers feel cheated. The solution is to allow the ultimate user to negotiate the price with farmers or landowners. This practice is followed by several countries.

Secondly, the government identifies the land to be acquired and also determines the compensation to be paid. This method is obviously undemocratic. The solution is to allow professional (licensed) land valuers to determine the fair value of land, as is the practice in other countries.

Thirdly, the government has not clearly defined the ‘public purpose’ under the Land Acquisition Act. Using public purpose to acquire land for SEZs or industries or housing is a colonial hangover. The continuation of the absolute power to acquire land in independent India, according to conservative estimates, has hurt over 60 million people. The government needs to clearly define public purpose. The public purpose doctrine should only be invoked when the land is to be acquired for specific purposes like the development of a deep-water port, a dam, right of way between two cities, and the like. It need not be invoked for activities like industries and housing. There should also be a provision for private acquisition of land. In case the acquisition of land is for a public purpose, where the landowner cannot challenge the acquisition, the government must ensure the valuers remain as independent as possible.

Often, absurdly high transaction taxes distort the market price of land. The Centre can take the lead in this regard by standardising taxes at 1% of the value. It may also compensate the state governments and local bodies for tax losses. At the same time, the idea that agriculture can be protected or that farmers’ interests can be upheld by allowing SEZs to only use wasteland would go against the interest of farmers.There is also substanial weight in the argument that agriculture grows by increase in yield and not by preventing tiny portions of land from being used for industrial activities.