The Telegraph
Since 1st March, 1999
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- Free market philosophy insists on protection of property rights

Second, how far should the government indulge itself in the act of acquiring land, by force if necessary, from farmers and hand them over to profit-maximizing investors' How far can we justify this infringement on private property rights' West Bengal agriculture under the Left Front rule had undergone a sea change in the Eighties. It all started with land reforms, with the distribution of vested land among the landless and with conferment of permanent cultivation rights as well as the right to a fixed share of output to the actual tillers of the soil. This, coupled with the introduction of high yielding boro cultivation, resulted in agricultural growth and improvement in rural standards of living which continued till the end of the Eighties.

The good times ended there though. By the beginning of the Nineties boro cultivation had reached its natural frontier. The high-yielding form of cultivation required a lot of water and could not be extended to areas where water was scarce. Distribution of land and cultivation rights had also slowed down simply because few lands were left for redistribution and few sharecroppers were around without cultivation rights. These slow-downs in institutional reforms were accompanied by sharply increasing prices of agricultural inputs like fertilizers and electricity on the one hand and by stagnant or even decreasing prices of paddy on the other. All these factors, taken together, made agriculture a hopelessly unprofitable activity, so much so that about 15 per cent of the beneficiaries of land reforms had either sold their land or given up their cultivation rights and had shifted to a non-agricultural livelihood by the beginning of the new century.

There was yet another factor halting prosperity in rural Bengal and this was the extremely adverse land-man ratio. Human pressure on land in West Bengal worked out to be three times that of the all India average. This was partly the result of a virtual one-way traffic of refugees at the time of the partition and partly of a continuing inflow of immigrants from neighbouring states and countries. As a consequence of this strain and the agrarian slow-down mentioned above, standards of living in the agricultural sector remained modest, around the all-India average, to be more precise, and West Bengal remained an economically mediocre state in spite of the agrarian reforms and revolution. To improve the condition of the masses, clearly something has to be done, some fundamental shift of focus from agriculture to non-agricultural means of livelihood is needed, for by now it has become amply evident that the economy of West Bengal has outgrown the limits of the agricultural sector. The obvious choice is developing modern industrial and services sectors, an endeavour which had been neglected by the left for more than 20 years. But the new ventures need land, land to build factories, roads, bridges, new townships with modern facilities, airports and seaports.

As very little land has been kept idle in West Bengal, this extra amount, at least a part of it, has to come from the cultivable pool and this might necessitate a sacrifice of some agricultural output. But that sacrifice would make a lot of economic sense.

Some are worried about the future food security of the state. There are a number of ways to comfort them. First, the land required is not as high as to affect overall production in any noticeable way. Second, West Bengal is a part of the Indian Union and enjoys free trade with the rest of the country. So, given the option of trade, self-sufficiency in food is neither necessary nor desirable if higher returns obligate shifting of resources to other sectors. Third, the present problem of the agricultural sector is not one of excess demand but of low prices stemming from poor marketing channels and low purchasing power of the local consumers. Indeed, if employment opportunities outside the agricultural sector are opened up and more income is created, farm prices should improve due to a boost in demand and so should the condition of the farmers.

The real problem lies elsewhere. How does one acquire land for the newly emerging sectors' Does one depend on the free market or do we need the government to intervene' If transactions could be completed through the free market, that would indeed be the ideal situation, simply because free-market transactions are strictly voluntary, they do not entail any coercion of the transacting parties. It is important to understand that the new expansions are based on the philosophy of the free market, on the premise that it is fair and just. But one of the cornerstones of this philosophy is protection of property rights. It is crucial that we do not violate them. How should we then handle situations where farmers are unwilling to sell their land'

In West Bengal the government and the party are intervening in a big way to make sure that unwilling sellers do not impede quick land transactions. This is certainly important for attracting actual investors to the state and for sending the right signals to distantly potential ones. But the trouble is that this act of intervention, this feat of land acquisition by special power, by force if you may, is blatantly violating property rights. We have seen this violation in Narmada, and now we see it in Singur. Is there a way of getting around the problem'

Ronald Coase of the University of Chicago had a Nobel-winning theorem which is of great relevance in the present context. According to the Coase theorem, initial distribution of property rights does not matter provided property owners can freely transact with one another. Indeed, through free market transactions, they would reach the social optimum where the person who has the greatest use for a property would pay a suitable price and acquire it.

In the present context, the Coase theorem would imply that if the initially unwilling farmer were offered a high enough price, it is most likely that he would sell his land voluntarily. The problem is that the government or its party machinery, in its eagerness to make investments attractive and to undo the ignominy it had earned over the past as investor-unfriendly, is trying to force the transactions at a pre-determined price which might certainly seem to be low to some sellers. In the process, the property rights of the poor farmers are being dishonoured.

We would then urge the government to allow the potential investor to offer a suitable price to the seller without the government or the party coming in between. If profit expectations are high enough, the buyer can certainly compensate the seller for the transfer of land. If, on the other hand, the buyer is unable to compensate the seller, investment is not worth pursuing anyway. It is essential to realize that if one hails the market, one should be prepared to play by its rules.

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