India - A thrift industry for land losers

Kanika Datta

India Inc, it seems, is increasingly becoming a helpless bystander when it comes to acquiring land for industrial projects. The issue has become so emotive that it causes both heartburn and easy pickings for political parties in opposition — as the Congress party’s “protests” over Sanand and Mamata Bannerjee’s “victory” in Singur attest.

The bottom-line is that some sort of lasting solution is urgently needed if rural India is to be convinced of the benefits of industrialisation. It is easy to suggest a solution in the Chinese model where the government played a pro-active support role that eventually generated a pro-industry outlook among China’s peasantry. In fact, contrary to the favoured wisdom of Indian businessmen, the totalitarian nature of China’s government was not always leveraged to browbeat local populations to give up their land.

But India is not China and our chaotic democracy and argumentative pluralism call for a more customised approach to the issue. India Inc has already sensed this in the flurry of corporate social responsibility schemes that mushroom around mega-project proposals, from schools and hospitals to football academies. Indeed, no one can fault the Tatas for the energy with which they set about creating job opportunities around Singur before they decided to depart.

But these are, at best, selective solutions. The overall message from Singur, Nandigram and Posco’s troubled project in Orissa is that no matter how generous the compensation, the absence of a durable social safety net will always make sections of farmers reluctant to part with their land. India lacks both a safety net and, its corollary, a viable thrift industry to provide farmers with alternative income streams once they lose their one asset.

Not all farmers are big enough or have the savvy and wherewithal to convert themselves into land-brokers as they did in Gurgaon and Tamil Nadu. Many larger farmers in these regions re-invested their compensation in buying up land in the hinterlands, reaping the benefits of escalating land costs as industrialisation spread.

But, as my colleague Pradeep Gooptu pointed out last week*, many land-losers in Singur are dismayed at Tata Motors’ withdrawal because they’ve run through their compensation money, thanks partly to inflation but mostly because of their lack of expertise in handling the cash.

There’s the rub — and it’s probably a pointer to a viable solution that could require a workable “public-private partnership”, to use the term in vogue. Could the states and private enterprise not provide farmers with investment options that yield steady income streams to additionally compensate for the loss of an asset? The Jindals of JSW Steel half-understood this with their novel compensation scheme for a steel plant in West Bengal. The proposal involves offering land-losers shares in the new company equivalent to the value of the land, plus an upfront cash payment.

The idea is certainly inspired but evidence of success is too localised yet. Also, such schemes may be complex for people who are yet to understand the intricacies of capital gains and dividend income — a reason only 3 per cent of Indians invest in the stock markets in any case.

The reason companies need to be involved in the exercise of developing a micro-thrift industry is that they automatically have a stake in guaranteeing its success. Also, government intervention on this count has been a signal failure. The Maharashtra government’s rank ineptitude in helping masses of workers laid off during the closure of integrated textile mills in Mumbai in the eighties is one case in point.

Another example is the National Renewal Fund (NRF), which was started in 1992 as a social safety net to protect workers impacted by technological upgradation and modernisation or the closure of sick units.

The NRF generated considerable interest at the time but its performance was considerably less inspiring. For one, its ambit was restricted to the public sector, thereby excluding the 80 per cent of the workforce in the unorganised sector. A plan to extend the NRF to the private sector and state PSUs was never taken up. At the end of 1999, the latest year for which data is available, the NRF had disbursed VRS of Rs 2,531 crore to just 1,33, 376 workers and only 31 per cent of those laid off were redeployed.

There were two other more critical elements to the NRF — employment insurance and soft loans for redeployed workers. Both were non-starters and the scheme, such as it was, all but folded in 1999-2000.

In the absence of a universal pension scheme, which looks unviable anyway, smaller, practical interventions by companies and state governments could probably damp the income uncertainties for land-losers. Those balking at the thought of private intervention in micro-thrift schemes have only to consider the chit funds and poorly regulated cooperative banks that cheat people out of millions each year.

A scheme in which the company setting up a project provides the seed capital and the state government the regulation would probably have a bigger chance of success. At any rate, it will provide politicians of all hues less opportunity for pointless opposition.