Move Over Kolkata Cadres

Posted September 18, 2008

This year’s Diwali will be bittersweet for the people of West Bengal. October was supposed to be the month when the first Nano rolled off Tata Motors’ assembly line in Singur, a town of around 20,000 one hour’s drive from Kolkata. But a land dispute has suspended work at the site, raising serious doubts whether the “one-lahk” ($2,500) car will ever see the light of day. Although the dispute is ongoing, already many are drawing important lessons from the Singur fiasco. The conclusion? The communist-led government in Kolkata needs to seriously rethink its role in acquisition of agricultural land for industrial purposes.

The current crisis dates to May 2006 when Tata Motors announced it would set up a plant at Singur that would produce the low-priced Nano. The Mumbai-based automaker had been lured to West Bengal by the state government, which offered the company cheap land, generous loans and massive tax breaks.

The government acquired around 1,000 acres of land for use by Tata and work on the site began at the beginning of 2007. As details of the agreement leaked out, some disgruntled landowners who had sold to the government had a change of heart and demanded that some of the land be returned to them. The dispute came to the boil in recent months and, despite several attempts at negotiations, no lasting agreement has been reached. As of Tuesday, Sept. 16, the situation remained in deadlock. “The suspension of our work at the site continues,” a  spokesperson for Tata Motors wrote in an email message. 

While the specifics of the Tata Motors case are intriguing, the root of the problem lies deeper. And unless these fundamental reasons are addressed, once and for all, it is likely that West Bengal will continue to experience similar confrontations in the future. If left untreated, the symptoms could get worse, permanently damaging the state’s ability to attract—and keep—economic development projects.

At issue is how land should be acquired from farmers for use by industrialists. At the best of times, this is a trying process throughout India. But it is especially problematic in West Bengal, where communists have ruled for more than three decades. A cornerstone of their policies was land reform. On coming to power, vast amounts of agricultural lands were taken from large, often absentee, landlords and transferred to small farmers. Today, 84% of the land is in their hands, a figure double the national average.

In the future, more land will need to be switched from agricultural use to industrial use if the state is to have any hope of giving jobs to its growing population of young people. Anupam Ray, associate director of KPMG Advisory Services in Kolkata, expects the working population in West Bengal to grow by an additional 20 million between now and 2021. If the contribution made by manufacturing to the economy is not increased from the current 11%, a high rate of unemployment in the future “is not unrealistic,” wrote Mr. Ray in an email message.

Creating a system that facilitates the smooth reallocation of land to accommodate economic development is going to remain a key challenge into the future. So far, the government’s performance has been disastrous.

“Singur is a problem because the government did it,” said Pradeep Gooptu, resident editor at the Business Standard based in Kolkata. “The government should not be messing about with land. Instead, it should leave it to the farmer and the investor to work it out and buy through bilateral deals,” he said via telephone from Kolkata.

Mr. Gooptu said there are several cases in West Bengal where private companies have successfully acquired land from farmers in a manner acceptable to all parties involved. For example, the acquisition of land by JSW Steel and by Indian electronics firm Videocon went smoothly thanks to a proper consultation process between the parties involved and appropriate financial compensation. Mr. Gooptu said the Singur incident has been a “wake up call” for the cadres in Kolkata. “They want to get out” of the land-acquisition process, he said.

Yet 30 years in power means it is unlikely that the government will be willing to remove themselves totally from such an important aspect of economic development. If nothing, Singur should force it to reconsider its role. Perhaps the government could create an appropriate regulatory framework that would allow for the smooth exchange of land between farmers and industrialists. In this way, the government’s role would be that of facilitator, and not as negotiator.

Failure to modify its stance could see only more headaches for the leaders of West Bengal as more and more would-be investors turn their backs and look elsewhere for opportunities less fettered by the hand of government.

Mr. Murphy is deputy editor of the REVIEW.