Using options to aid land acquisition
Land acquisition is a thorny problem for India – a fact that stalls development. On the one hand, our laws make it very difficult to acquire land for development. On the other, developers routinely influence the government to use coercion and acquire land using the argument of public good. The result is that projects get stalled in court, people are hurt, and the last thing that moves forward is development. Both socialistic and capitalistic frameworks have failed us in serving all the stakeholders in this problem, as they take one side or the other, but not a holistic perspective. Fortunately, a solution exists that can take us beyond our existing ideologies and help us move forward.
The solution comes from Stanford University’s pioneering work on decision analysis and voluntary social systems. Decision analysis helps us make good decisions for any endeavour, while voluntary social systems is the science of solving social problems without using coercion (read “laws”). The combination of the two results in a huge idea in land acquisition: the use of options.
Let’s understand the process of land acquisition for development. When land developers want to acquire a large tract of land, they need to negotiate with individual plot owners. If individual plot owners find out what the purpose of acquisition is, they can hold out, knowing they can stall the entire project. This happens usually when the government is involved, as the government is required to publicly disclose the purpose of the acquisition. The government in response often resorts to coercion, using the argument of public good.
The use of options changes the entire game, completely eliminating the government’s involvement in private land acquisition. Instead of being fixated on just the tract that is needed, a private developer starts with a much larger potential tract, and focuses on buying an option to buy the land later with each individual plot owner. An option is simply a contract that binds the plot owner to sell the land at a later date at a certain price. If a plot owner refuses to sell the option, no coercion needs to be used. The developer simply talks to more plot owners and expands the scope of the search, until enough options are acquired that will give them a contiguous plot of land large enough for the development. Then, the developer can exercise the options they need, and purchase the underlying land.
The implications of this are immense. First, agents of private developers don’t need to reveal the purpose of the acquisition. When I buy a battery in the store, the price of the battery is not dependent on what I use it for. The only thing that matters in the option deal is that plot owners feel they are getting a good deal. If they don’t want to sell the option, their liberty is respected and the developer moves on. Second, the amount of money paid for the option is a fraction of the cost of the land. Thus, the process of finding contiguous land is no longer prohibitively expensive. Third, because it is a contract that is entered into voluntarily from both sides, the chances of ending up in court are small. Fourth, and perhaps most important, by insisting that private developers manage their own land acquisition process with options, the government keeps its hands clean and avoids creating a human rights violation. No police force or guns will be necessary when individual liberty is respected on all sides. Tribals, who have suffered much due to coercive land acquisition, will finally get their right to refuse to part with their land if they so choose. Finally, because we now have a mechanism to acquire land without violating human rights, we no longer need to put restrictions on usage, and can have much simpler land acquisition laws.
Voluntary land acquisition has been tried with success by large companies in the west (one example is Disney) who got fed up with the problems of using the government to get private land. Some may point out that what works in the west may not necessarily work in India. First, if we can actually save lives, lower costs and respect the rights of landowners without compromising on development, it does not matter where such a great idea comes from. Second, options have been in use in India for a long time, without us explicitly recognising it. If you’ve tried buying land in India, chances are you’ve been asked to pay a “roka” as North Indians would call it. The “roka” is an advance that a buyer would pay a seller after which the seller would stop showing the land to others. The “roka” is an option, a right to buy the land within a specified time. “Roka” options are quite common in the real-estate market and are probably referred to with different words in different parts of the country.
Finally, the Indian government needs to revoke the British-era law Article 300-A that gives the government the right to acquire individual property through any argument of public good. We should realise that governments claim almost any economic activity as a public good, and forcible acquisition laws become a vehicle for individual abuse. By revoking this law, private parties will be forced to do their homework and learn how to voluntarily acquire land, instead of naively dragging in the government, creating a human rights mess, and letting the government deal with the consequences. Proceeding on this path will allow us to combine head and heart, as the Indian philosophers have taught us, to get us unstuck and break new ground.
First published on Dec 14, 2014 in the Business Standard