An amazing land legislation which says land can be procured only by paying 4 times the market value has been passed. This will mean the land owners will benefit, correct?

No. Only Economics will work.

Let us take a different example – if suppose a legislation was passed that women should be paid 1.25 times the salary for a man, you think women will benefit? No.

Lesser jobs will go to women. People will make job offers only to men. Or women will be recruited at a particular salary and will be forced to pay back in cash. Or men will be paid ‘extra late sitting allowance for sitting beyond 8pm’ and women will not be paid that allowance. If a stupid bureaucrat with a compliant politician (or the reverse!) pass a law, it does not work. I have no clue how many lawyers are looking for loopholes, but surely something will be found.

Let me give you an example from an old provision in the Income Tax Act, 1961.

There was a provision which said if you sold a property below the market price, the government would acquire it at that stated price. Simple, it should have brought down the black money, correct?

Well I know how a brilliant lawyer used it. Mumbai has many properties where the landlord could not vacate the clients – dramatically reducing the resale value. Let us say as a landlord with a 50,000 sq ft of rental property thought his property was worth Rs. 5 crores -but the tenants were paying only say Rs. 4 psf rent, he was getting only Rs. 200,000 as rent. The Mumbai rent control had (not sure if it is still true) that you could buy it from your landlord at 100 times the rent. So he could have sold it to his tenants at Rs. 2 crores.

This act came as a blessing! They would make an agreement between A and B that the property was being sold for Rs. 4.8 crores…..the Commissioner would pay (I think) a 15% premium…and acquire it…then find that they could do NOTHING with the property!! So suddenly the government was saddled with expensive property – which could not be sold. L O L.

Also there is a provision which says ‘If a Scheduled Caste employee is removed and he complains to the police, it is a NONBAILABLE COGNISABLE OFFENCE! So what to do?

I know one big employer who does not employ a candidate if he is a SC….so sometimes the good intention of the legislation is lost in the ingenuity of the bureaucrat. Markets help making a mockery of the law. So this Act will also become a joke soon.

By the way did you think this act is meant to help the small guy? NO. This is just to spite Maya’s work at UP…meri Sonia mahan!!

 

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  1. Well said Subra
    The do-gooders who want laws for everything never realize that there is something called “unintended consequences”. Many laws end up hurting the very people they are intended to help.

    Rent control laws prevent landlord from improving their property and discourage other people with money from building rental accommodation, greatly reducing the SUPPLY of rental homes.

    Minimum wage laws prevent employers from employing youngsters with very little skills because they cannot afford to pay the arbitrary bureaucrat-set minimum wage, leading to youth unemployment.

    There are thousands of such “noble” causes where the Socialists and other do-gooders believe they can ignore the market forces and human nature and go ahead with regulations, never looking back as to what effects their precious regulations caused. For these people only the intention that counts, not the actual effects.

  2. subra loop holes are the reason many companies survived esp during the exit of cocacola and ibm in 70s. you are right, something will be figured to misuse this act too.

    very apt article..

  3. Okay.. Let assume that the legislation will not help and would no more harm than good?

    What is the solution then? Any alternatives? Do you think there is anything else that can be done to save the misery of a small farmer whose only source of income was farming his small patch of land which was acquired by the government at peanuts’ rates to benefit a multi millon doller industial conglomerate?

    Any thoughts? Solutions???

  4. Dr Mohammed Ali khan

    @Rahul
    There is actually a simple, elegant and ethical solution.

    Respect the private property rights of the farmer.

    If he does not want to sell his land, leave him alone.
    Let the conglomerates deal with him directly or let him form an association with the other private landowners and deal with the. There is no role for the government in between the farmer and the conglomerate ( except for dispute resolution ).

    The farmer can choose 1. Not to sell 2. Sell it at market rates 3. lease or rent his land for a monthly rate, indexed to inflation 4. Exchange his land for preferred shares in the conglomerate with a set dividend rate 5. Combination of the other options or something new.

    (But wait, India is a Socialist country. Marx is our God. Private property is evil. The government has every right to seize private property for the “public good”. Public good is whatever the bureaucrats, politicians and the “intellectual’ elite choose to describe. The small farmer who is private landowner is a “Kulak” ” an evil capitalist land-owner”- Why do we bother what happens to him? )

  5. Dr. Khan,

    How do you solve the problem of “contiguous” land? I mean if we totally respect the private property rights of the farmer, and a very few farmers chose not to sell the land, then nothing can be built on the other non-contiguous land. You cannot set up any factory whatsoever since the “market rates” then become “extortion rates” by a few landowners.
    —–
    If I understand Subra’s PoV, it means by this law, it becomes totally unviable to setup a factory (and it will be cheaper to import from China/Thailand)?

  6. @Ashok
    Good question!
    But, I believe we have to establish by deeds, not words, the principle of non-violation of property rights. We have to establish that private property is SACRED. The property deeds are not just pieces of paper, torn away at the whims of bureaucrats and politicians. That is more important as an initially.

    As for the problem of non-contiguous land, a corporation can identify several lands for it’s factory. Landowners in the said locations can form associations and deal with the corporation. If a farmer makes, say, Rs 10,000 pm from his plot of land as profit, after back breaking labor, and the corporation offers, say Rs 25,000 pm as dividend ( with escalation yearly as per inflation rates), its a good deal, especially when the farmer does not need to work for that Rs 25, 000. You just need one deal of this sort to go through.Soon you will have multiple landowner associations clamouring for such a good deal and competition among the landowners will soon bring them to their senses and push the prices back to the market rates.

    For the above scenario to take place, private property rights have to respected in toto. There should be no compromise on this issue.

  7. Subra…Glad to see you apply the law of unintended consequences. I wish to see more of this applied by mainstream news commentators and opinion makers. So that we Indians can come to understand the dangerous of legislation and oppose it.

    As Dr. Khan said, respect to property rights will solve most of these problems.

    Ashok….It is incorrect to say that all farmers will chose not to sell the land, few farmers may but not necessarily all of them? The idea you are describing “hoarding” in this case hoarding land. The price system, consequences/reality (no children, illness etc.,) human desire to want things that we don’t have will make us part with things which we have more of. There is a decent property rights system when it comes to converted residential sites in our cities, we see a lot of activity of buying and selling and land being put to different uses such residences, commercial complexes, schools, shops etc., Property rights simply means I cannot take anything, I mean anything you have with force. I cannot take it and the same applies to the govt. This property rights system protects the poor, the politically less influential so that the man with muscle & money power cannot grab things from the little guy. As of importing stuff from China/Thailand is also not correct. I would encourage you to read two short books Economics in One Lesson by Henry Hazlitt and the The Law by great french man call Bastiat, both are available for free online. Hope you will see the world diffidently & correctly after you finish these 2 books. There is grave danger in thinking that govt. can take land or your other belongings anytime they want and all they need is a good reason.

    Narasing
    http://narasinga-p.blogspot.com/

  8. Legislation to help farmers! Non-sense! Ideal scenario would be to let business people pay the price demanded by the owners. Mutual consent is required for a fair deal. Govt. should not have any role in fixing the price and transferring land to corporates using police force if someone opposes.
    The concept of number of times of market value is trash.
    I will give a simple fact : In AP Govt. has fixed the price of paddy at around Rs.1000/quintal for over couple a of years. But depending on the demand and supply farmers sold them at prices ranging from 800 to 1600.

  9. subra.what a wonderful piece.this has to be the BEST blog post -in any financial blogs of india- in many months! kudos.you hit the nail on the head.
    the arrogance of central planners never ceases to amaze.their thinking is devoid of anything but the short term and they have no idea of unintended consequences or oppportunity costs.

    as a related topic:lots of people think that minimum wage legislation helps the poor.how can anyone with rudimentary economics knowledge even think that raising the price of labour will lead to increase in demand for labor? they fail econ101.especially chacha manmohan.who is NOT AN ECONOMIST.he is foolish bureaucrat babu .i am sick of people who respect him as an economist.he is nowhere close to even a moderately good economist.

    @Rahul.check out how farmers in Magarpatta,Pune got together and came up with a fine solution for such “contiguous land” problems.
    Elinor Ostrom ,2009 Nobel Prize winner in economics got her prize for exactly this.-pointing out how even in third world countries,only local(very local) govt is needed to resolve problems of such land issues (she studied the Terai in Nepal).
    Nandan nilekani should have concentrated on solving india’s land title problems instead of coming up with ghastly UID (sounds like a similar population control device!)

  10. “his small patch of land which was acquired by the government at peanuts’ rates to benefit a multi millon doller industial conglomerate”

    @Rahul. the solution is for the govt to stop being the broker cum eviction agent/goonda .if industrialists are given a choice,they will take the easy route of lobbying govt babus and netas than negotiating with the farmer.they should be directly negotiating with farmers and their voluntary groups.

    we have to learn from how developed countries handle eminent domain (govt taking land for roads eg).the people are lavishly compensated whenever their land is taken for “public purposes”.they are able to retire in peace.it is a time for celebration and they dont need to feel like victims.

    on the other hand,in india,in UP when mayawati took away land for some “market compensation”,the courts said that ” a few people need to sacrifice so that the majority can benefit”.such views are horrible socialist claptrap.if the majority is benefitting,they should be damn well paying the minority a befitting impressive sum.

    the whole point of “market price” is moot. market prices are applicable only when the farmer has put up a ‘for sale’ sign on his farm on his own.if the farmer didnt initiate the sale,then using existing market price is not the right benchmark.it needs to be discovered by negotiation and contracts.

  11. @Dr.Khan and Pravin,

    It may not be possible always to identify alternate sources of land. For e.g Urban infrastructure projects (okay, I have changed my example 🙂 ). Eminent Domain has to come into the picture. I don’t disagree with the point, that Pravin makes that owners have to be lavishly compensated but if a person is just not willing to sell (just for the heck of it) at whatever cost, what do you do?

  12. @ashok. you are dealing with hypotheticals.people are generally reasonable.i would like you to give an example where inspite of lavish compensation ,there was still a holdout.in anycase if it is about a few hundred square feet,i am sure ANY road needs to have that flexibility to alter its plans a tiny bit.
    people in general are not ‘khaddus’ fellows out to harass everyone else.in fact if there is only a couple of holdouts,you can be sure that there will be other factors including social pressure(after all,we are not sociopaths and we do prefer being part of society).

    the lone ranger sociopath is not as common as you would like to imagine.

  13. @Pravin
    And even if such sociopaths do exist, it is better to respect property rights than go ahead with a project, riding roughshod over private property rights. In the long run, it creates a confidence in the system and that is much more important than any benefits that may be derived from the project.

  14. @Pravin,

    Lone ranger sociopaths may not be “motivated” by “Khadoos-ness” only. They can be a front for rival business houses or environmental/political groups who are opposed to this project.


    Example of a “Khadoos” motivated by something other than money: On the Peripheral Ring Road of Bangalore (built by a private company called NICE), at the junction of PRR and Bannerghatta Road, a “khadoos” has refused to give the land for the flyover construction. Now all the traffic has to take a 250m diversion and then rejoin the PRR. Imagine the wastage of fuel that happens on the ring road.

    General rumour has it that this “Khadoos” is close to “farmer-PM” Deve Gowda (who has staunchly opposed the NICE PRR for all his life) and he won’t sell. I don’t know the current status of the court cases regarding this piece of land.

    http://www.skyscrapercity.com/showpost.php?p=73460167&postcount=380
    —–

  15. @ashok: there you go: it is motivated by politics and not by any genuine reason.given that,how can one trust those very politicians to “solve” such problems?.
    imho,it is far easier for everyone to take a detour of 250 mts.afterall,that is still a great improvement from the zero amount of road that existed before.
    clearly,the problem here is a political animal and not a general farmer.thus one cant expect the snake to treat its own venom

    @dr khan.agree.200%

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