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Friday, October 1, 2010

Land for ‘Development’

Can the Displaced Be Rightly Compensated?

In an interaction with a group of editors on September 6, 2010, Prime Minister Manmohan Singh said: “…if we are not allowed to exploit the mineral resources of this country, I think the growth path of this country could be adversely affected.” At the same time, he also stressed: “We must adequately ensure that whether it is tribal rights, environmental concerns or forest concerns, they are given their appropriate place. But at the same time there has to be a balance. You cannot protect the environment of this country by perpetuating poverty.”

When asked if his calling for a balance was in the light of the recently suspended London-based Vedanta’s permission—a company that proposed to invest $8 bn in the project—to mine bauxite in Orissa, he said that he was speaking in general terms. Aside from his observation, even the growing militancy of those dispossessed of their land, particularly the forest-dwelling tribals and cultivators of the central India which is the heart of India’s mineral wealth, duly aided by Naxalites, demands an early answer to this troubling question: How to strike a balance between protecting the interests of tribal societies/the displaced people and ensuring economic development?

In commonsensical terms, any project is worth pursuing if its aggregate social benefit is greater than the aggregate social cost. But here too arises a glitch: How to interpret social cost and social benefit in such a way that it becomes ‘all-inclusive’—acceptable to a wider section of the society? This becomes all the more difficult when it comes to the tribal people whose lifestyle is disrupted in the name of ‘development’—development that involves digging up their lands for minerals, which prima facie appears to bestow many benefits on the ‘non-tribal’ society. Integration of the tribal people’s interests with the modern concept of ‘development’ indeed calls for ingenuity from the modern planners. Encouragingly, it is not altogether new: SAIL and Tata Steel appear to have already displayed such ability in the areas of their captive mines: they have shared more of their gain generated from their wealth-creation ability with the tribal people of the areas.

Amidst these arguments, the importance of which has only been highlighted by the recent resentment caused among the domestic as well as foreign investors by the cancellation of Vedanta’s mining license in Orissa, the government appears to be planning to replace the earlier proposed bill to give 26% of equity of mining projects to the affected/displaced population with a new version that mandates to provide annuity equal to 26% of the net profit as relief by the mining companies. Obviously, this move has been met with a lot of resentment. It is argued that such a move will make  mining projects unviable. 

One section argues that the best way to move forward is to end the opacity in the mining-related investments. And they propose two means to achieve it: first, imposing excise duty on mining output. They suggest that such levying of duty must be linked to export-parity prices, preferably pegged at 10% of it, which is a global practice. They even suggest hiving off the captive mines of existing companies as separate entities and mandating transfer pricing to be pegged at the going international prices to recover royalties. Cumulatively, such moves alone would boost state revenues, enabling it to create the much-needed dedicated funds for the social development of displaced people—train the displaced people to equip them with new skills for securing employment away from their traditional avocations and to get integrated with the mainstream in course of time.

And the second is: to amend the archaic laws relating to landownership forthwith, granting individual ownership to the tribal people and also the right to the minerals lying under that land. Simultaneously, rights over the common land of the village and the related forest lands on which these villagers depend should be properly defined to facilitate correct recognition. Such a move alone would enable the affected people to negotiate with the investors on an equal footing and ensure that they get what they want. Theoretically, it sounds valid, but in practice, it may not work that well as it worked in the US, for tribal people are not that equipped to do a valuation of their lands, of the underlying minerals, or of the prospects of the proposed mining company. So, as Kaushik Basu, Chief Economic Advisor to the Finance Ministry, said, “The government has to mediate in this.”

Whilst on this, it is equally important to consider what else Basu has said about land acquisition: “There is no getting away from the fact that some land will, over time, have to shift from agriculture to industry. This is a concomitant of development.... There is a huge difference in market price before and after an industry comes up; and, I would want farmers to get the benefit of this future price rise.... One of the biggest needs for India is development in small towns and the rural hinterland. This will create employment.”

So, what needs to be done to strike a balance is the coming together of people affected and the corporates involved, along with the participation of knowledgeable public-spirited individuals, to create a trust among the agencies and utilize the compensation arrived at, based on the valuation of the projected cash flows, to create an alternative but acceptable way of living for the displaced population.

- GRK Murty


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