6. Economics Notes 35

Elaborate Notes

Tenancy Reforms, Regulation of Rent

• Historical Context of Tenancy: Prior to independence, India’s agrarian structure was dominated by exploitative tenure systems institutionalized by the British. The Permanent Settlement (1793) in Bengal, Bihar, and Orissa created a class of zamindars whose primary role was revenue collection. Under this and other systems like the Ryotwari and Mahalwari systems, the actual cultivator (tenant) was often left with a subsistence-level income after paying exorbitant rents and other illegal cesses (abwabs). The British administration, as noted by economic historians like R.C. Dutt in his work The Economic History of India (1902), was primarily concerned with maximizing revenue extraction, leading them to grant extensive coercive powers to intermediaries like zamindars.
• Magnitude of Rent: The rents were often not fixed and could be as high as 50% to 80% of the gross produce. For instance, pre-independence estimates for Punjab indicate rents reaching up to 80%, while in regions like Bombay, they ranged from 40% to 60%. This left tenants with no surplus for investment, trapping them in a cycle of debt and poverty.
• Post-Independence Reforms and Recommendations: Following independence, the Agrarian Reforms Committee (1949), chaired by J.C. Kumarappa, laid the groundwork for land reforms. The First Five-Year Plan (1951-56), drawing from these recommendations, advocated for the regulation of rent, suggesting that the maximum rent should be fixed between one-fourth and one-fifth (20-25%) of the gross produce. Most states, with the exception of Punjab, Haryana, Jammu & Kashmir, and parts of Andhra Pradesh, enacted legislation to this effect.
• Implementation Challenges:
  • Socio-Economic Disparity: The legislation often remained on paper due to the deeply entrenched power of landowners in rural India. As observed by scholars like P.C. Joshi in Land Reforms in India: Trends and Perspectives (1975), the socio-economic and political dominance of landlords allowed them to violate legal rent ceilings with impunity.
  • Lack of Awareness and Weak Bargaining Power: Tenants, particularly sharecroppers (bargadars), were often unaware of their legal rights. Even when aware, their economic dependence on the landlord for credit, seeds, and social security prevented them from asserting these rights.
  • Oral and Informal Leases: A significant proportion of tenancy agreements were (and still are) oral. This lack of documentation makes it nearly impossible for a tenant to prove their status in a court of law and claim legal protections.

Security of Tenure

• Legislative Objectives: Post-independence tenancy laws aimed to provide security of tenure to cultivators through a three-pronged approach:
  1. Protection from Arbitrary Eviction: Tenants could only be ejected through due process of law and for specific reasons like non-payment of rent or misuse of land.
  2. Right of Resumption for ‘Personal Cultivation’: Landowners were permitted to resume land from tenants, but ostensibly only for self-cultivation.
  3. Guaranteed Minimum Holding for Tenant: In case of resumption by the owner, the law stipulated that the tenant must be left with a minimum prescribed area of land to cultivate.
• Flaws and Loopholes in Implementation:
  • Ambiguous Definition of ‘Tenant’: The effectiveness of these laws hinged on the legal definition of a tenant. In states like Uttar Pradesh, the law did not recognize sharecroppers as tenants, thereby excluding a vast majority of cultivators from legal protection.
  • The ‘Personal Cultivation’ Loophole: This clause became the most significant loophole for mass evictions. The definition of “personal cultivation” was often broad, including cultivation through hired labour or supervision by a family member. Landlords used this pretext to evict tenants and either cultivate the land with wage labourers or, more commonly, lease it to another tenant under informal, more exploitative terms. This phenomenon is extensively documented in studies by Francine R. Frankel in India’s Green Revolution: Economic Gains and Political Costs (1971).
  • ‘Voluntary Surrenders’: Landlords frequently used coercion, social pressure, and economic threats to compel tenants to “voluntarily” surrender their tenancy rights. Since these were legally framed as voluntary acts, the state could not intervene.
  • Inadequate Land Records: The entire system of legal protection depends on accurate and up-to-date land records that reflect tenancy status. However, in most states, land records were poorly maintained, outdated, or deliberately manipulated to exclude the names of tenants. A person could only claim tenancy rights if their name was officially recorded. The ongoing Digital India Land Records Modernization Programme (DILRMP) is an attempt to address this historical lacuna.
• Policy Evolution: Recognizing the widespread misuse of the resumption clause, the Fourth Five-Year Plan (1969-74) recommended a drastic shift in policy: all tenancies should be declared non-resumable and permanent, with resumption allowed only for landowners serving in the armed forces or those with specified disabilities.

Ownership Rights for Tenants (Land to the Tiller)

• The ultimate goal of tenancy reform was to abolish the intermediary status and confer ownership rights upon the actual tillers. This was a recurring theme in all Five-Year Plan documents.
• While states enacted laws to facilitate this transfer of ownership, the progress was highly uneven and generally unsatisfactory.
• The Sixth Five-Year Plan (1980-85) set a target to complete the process of conferring ownership rights by 1982, but this was not achieved.
• Reasons for Failure:
  1. Financial Constraints: Tenants were often required to pay a purchase price (compensation) to the landowner. Lacking access to institutional credit, most poor tenants could not afford this payment.
  2. Landowner Dominance: The continued socio-economic power of landlords created an environment of fear, making tenants unwilling to assert their right to purchase, fearing reprisal.

Factors Contributing to Success of Land Reforms (in Pockets)

1. Collapse of Feudal Structures: The abolition of intermediaries like zamindars, jagirdars, and inamdars immediately after independence was a significant first step, bringing millions of tenants into a direct relationship with the state.
2. Political Will and Peasant Mobilization: The success of tenancy reforms was most pronounced in states with strong peasant movements and the political will to implement them. The communist-led governments in Kerala and West Bengal are classic examples.
   • Operation Barga (West Bengal, 1978): This was not a land redistribution program but a campaign to record the names of sharecroppers (bargadars), thereby providing them with legal security of tenure and rights to a fixed share of the produce. This was achieved through mass mobilization and village-level meetings led by government officials and peasant organizations.
3. Voluntary Movements: The Bhoodan Movement launched by Acharya Vinoba Bhave in 1951 in Pochampally, Telangana, aimed at voluntary land donation by large landowners for redistribution among the landless. It later evolved into the Gramdan (village donation) movement. While its material success was limited (much of the donated land was uncultivable or under litigation), it created a moral climate conducive to land reforms.
4. Kisan Sabhas: Peasant organizations like the All India Kisan Sabha (founded 1936) played a crucial role in organizing farmers, raising awareness, and pressuring governments to enact and implement reforms.
5. Constitutional Protection: To prevent land reform laws from being challenged in courts on grounds of violating the right to property, the First Constitutional Amendment Act, 1951 introduced the Ninth Schedule. Acts placed in this schedule were insulated from judicial review, a crucial tool that expedited the reform process.
6. Progressive Legislation: The revised Land Ceiling Rules of 1972 were more stringent, with fewer exemptions, a family-based unit, and retrospective application to curb benami (proxy) transactions.

Land Ceiling

• Concept: A land ceiling refers to a statutory limit on the maximum amount of agricultural land that an individual or family can own. The objective is to acquire surplus land from large holders and redistribute it among the landless and small farmers.
• Phases of Ceiling Legislation:
  • Phase I (Pre-1972): The Second Five-Year Plan (1956-61) recommended ceilings on existing holdings. However, the laws enacted during this period had major weaknesses: the ceiling limits were very high, the unit of application was the individual (allowing families to retain large tracts by registering land in the names of different members), and there were numerous exemptions.
  • Exemptions: The Second Plan suggested exemptions for tea, coffee, rubber plantations; sugarcane farms operated by factories; efficiently managed specialized farms engaged in activities like cattle breeding and dairying. These were often misused.
  • Phase II (Post-1972): A national conference of Chief Ministers in 1972 led to a new, more uniform national policy on land ceilings. Its key features were:
    1. Lowered Ceiling: The limits were reduced significantly.
    2. Family as the Unit: The ceiling was applied to the family (defined as husband, wife, and minor children) as a single unit, closing a major loophole.
    3. Fewer Exemptions: The number of categories exempted from the ceiling was curtailed.
    4. Retrospective Application: The laws were applied retrospectively from a specific date to nullify malafide land transfers made to evade the ceiling.
• Implementation and Outcomes: Despite the improved legislation, implementation remained poor. The Twelfth Five-Year Plan (2012-17) noted that only about 3 million hectares had been declared surplus, which is less than 2% of India’s net sown area. Of this, about 30% remained undistributed due to litigation and other administrative hurdles. The plan highlighted how the balance of power in rural areas remains skewed against the landless, making implementation difficult. In states like Karnataka, exemptions from ceiling laws have been provided to industries, indicating a shift in policy priorities.

Benefits and Negatives of Land Ceiling

• Arguments in Favor (Benefits):
  1. Social Justice: It addresses historical injustices by reducing the concentration of land, a primary source of wealth and power, in the hands of a few.
  2. Poverty Reduction: The Food and Agriculture Organization (FAO) has estimated that a redistribution of just 5% of farmland in India, combined with better access to water, could reduce rural poverty by nearly 30%.
  3. Employment Generation: Small farms tend to be more labour-intensive than large, mechanized farms. In a labour-surplus economy like India, this can lead to higher rural employment. The inverse relationship between farm size and productivity, argued by scholars like Amartya Sen, suggests that small farms can be highly efficient in terms of output per hectare.
  4. Fostering Cooperation: Distributing surplus land to beneficiaries could encourage them to form cooperatives for cultivation, helping them achieve economies of scale and better manage resources.
• Arguments Against (Negatives):
  1. Economic Inefficiency: Critics argue that ceilings lead to the creation of economically unviable smallholdings that cannot benefit from economies of scale.
  2. Reduced Investment: Small farmers have a higher propensity to consume and lower savings, potentially leading to reduced agricultural investment and slower long-term growth.
  3. Barrier to Modernization: Fragmentation and small plot sizes resulting from ceilings make the use of modern machinery like tractors and combine harvesters impractical and uneconomical.

Fragmentation and Consolidation of Landholdings

• Causes of Fragmentation:
  1. Laws of Inheritance: Both Hindu and Muslim succession laws mandate the division of property among heirs, leading to the subdivision of plots with each generation.
  2. Population Pressure: Growing rural population increases the pressure on a finite amount of land.
  3. Decline of Joint Family System: The breakdown of the joint family system accelerates the physical division of landholdings.
  4. Sentimental Attachment: Farmers often have a strong psychological attachment to their ancestral land, making them reluctant to sell or exchange parcels.
• Disadvantages of Fragmentation: It leads to wastage of land in boundaries, difficulty in managing irrigation and farm operations, disputes among farmers, and ultimately, low agricultural productivity.
• Consolidation of Holdings: This is the process of rearranging and re-allotting fragmented land parcels to form single, contiguous plots. Legislation was passed in most states for this.
• Progress: The process has been successful primarily in the Green Revolution states of Punjab, Haryana, and Western Uttar Pradesh, where it was a prerequisite for mechanization. Nationally, only about 46% of the total cultivated land has been consolidated. The national average landholding size is approximately 1.08 hectares (as per Agri Census 2015-16), with about 86% of farmers being small and marginal, holding less than two hectares.

Co-operative Farming

• As an alternative to overcome the disadvantages of small and fragmented holdings, co-operative farming was promoted. The idea was for farmers to pool their land and resources to achieve economies of scale.
• Despite government incentives, the movement largely failed. The Report of the Committee on Co-operative Farming (1965), chaired by D.R. Gadgil, found that most societies were not genuine and had failed to achieve their objectives.
• Reasons for Failure:
  1. Societies were often formed by large farmers merely to circumvent land ceiling laws and avail government subsidies, without any real joint cultivation.
  2. They lacked genuine spirit of cooperation, professional management, and were often plagued by corruption and internal disputes.

Model Agricultural Land Leasing Act, 2016

• Drafted by a committee headed by T. Haque under the aegis of NITI Aayog, this model act aims to formalize the land leasing market.
• Key Provisions and Aims:
  • Legalize Leasing: It seeks to legalize land leasing, which is currently widespread but mostly informal and insecure, to improve agricultural efficiency and equity.
  • Security for Tenant and Landowner: It allows for written lease agreements and protects the landowner’s title while ensuring the tenant cannot be arbitrarily evicted during the lease period.
  • Access to Credit and Benefits: A legal lease document would enable the tenant farmer to access institutional credit, insurance, and disaster relief.
  • Dispute Resolution: It proposes Special Land Tribunals for speedy resolution of disputes.
• Challenges and Concerns:
  • Impact on Land Redistribution: Critics fear it may discourage the sale of land by absentee landlords, who would prefer leasing, thereby hindering the transfer of ownership to actual tillers.
  • Federalism Issue: Since agriculture is a state subject, uniform implementation is a challenge, as states must enact their own laws based on the model.
  • Vague Clauses: The model act leaves key terms like rent and lease duration to be decided by the market parties, which may disadvantage the weaker tenant. It is also silent on whether leased land can be mortgaged.
  • Food Security: There are concerns that liberal leasing could lead to land being diverted from food crops to commercial or non-agricultural uses by corporate entities.

Food Processing Sector

• Definition: The term “processed food” covers products that have undergone one of two types of processes:
  1. Manufactured Process: A raw product from agriculture, animal husbandry, or fisheries is transformed using machinery, power, etc., such that its original physical properties are altered. The new product is edible and has commercial value. Example: Wheat converted into flour, bread, or biscuits.
  2. Other Value-Added Processes: A product undergoes significant value addition, even without a major manufacturing process, which increases its shelf life, makes it ready for consumption, or prepares it for a specific market. Example: Sorting, grading, waxing, and packaging of apples for export.
• Industry Overview: The food processing industry is a high-growth sector in India, with estimates suggesting its market size could reach over half a trillion dollars by 2025. It is a critical link between agriculture and manufacturing. Key sub-sectors include fruits and vegetables, milk and milk products, meat and poultry, marine products, grain processing, and consumer foods like packaged snacks and beverages.

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Prelims Pointers

• Pre-independence rent in Punjab was as high as 80% of the produce.
• The First Five-Year Plan recommended fixing maximum rent at 1/4 or 1/5 of the total produce.
• The Agrarian Reforms Committee (1949) was chaired by J.C. Kumarappa.
• The Fourth Five-Year Plan recommended making all tenancies non-resumable and permanent.
• The Sixth Five-Year Plan aimed to confer ownership rights to all tenants by 1982.
• Operation Barga was launched in West Bengal in 1978 to register sharecroppers.
• The Bhoodan Movement was initiated by Acharya Vinoba Bhave in 1951 in Pochampally, Telangana.
• The Ninth Schedule of the Constitution was added by the First Amendment Act, 1951, to protect land reform laws from judicial review.
• A new national policy on land ceilings was evolved after the Chief Ministers’ conference in 1972.
• The post-1972 land ceiling laws used ‘family’ as the unit for determining land holding, not the ‘individual’.
• According to the 12th FYP, about 2% of the net sown area was declared surplus under ceiling laws.
• As per the Agriculture Census 2015-16, the average size of operational holding in India is 1.08 hectares.
• About 86% of farmers in India are small and marginal farmers (owning less than 2 hectares).
• The Committee on Co-operative Farming was chaired by D.R. Gadgil.
• The Model Agricultural Land Leasing Act, 2016 was drafted based on the recommendations of the T. Haque Committee constituted by NITI Aayog.
• The Act proposes Special Land Tribunals to resolve disputes between landowners and leaseholders.

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Mains Insights

Socio-Economic Impact and the Unfinished Agenda

• Cause-Effect: Land reforms were not merely economic measures but tools for social engineering aimed at dismantling the feudal agrarian structure. The abolition of intermediaries was largely successful, but tenancy reforms and ceiling laws failed to achieve their objectives of social justice and equity. This partial success led to the rise of a new class of powerful, medium-to-large peasant proprietors (often from dominant castes) who benefited from the Green Revolution, while the landless and marginal tenants were left behind. This has perpetuated rural inequality and distress.
• Debate: The agenda of land reforms remains unfinished. While the focus has shifted from redistribution to market-oriented reforms like land leasing and digitization of records, the core issue of landlessness and insecure tenancy persists. The debate now is whether to revive the redistributive agenda or to focus on improving the productivity of smallholders through other means like technology, credit, and market access.

Policy Formulation vs. Implementation Gap

• Analysis: The history of land reforms in India is a classic case study of a significant gap between policy intent and implementation reality. While the legislation was often progressive, its execution was subverted by a lack of political will, bureaucratic apathy, judicial hurdles, and the strong resistance of the landed elite who controlled political and administrative machinery at the local level.
• Examples:
  1. Land Ceilings: Landowners used loopholes like fictitious divorces, registering land in the names of relatives (benami transactions), and prolonged litigation to evade ceiling laws.
  2. Tenancy Laws: The misuse of the ‘personal cultivation’ clause and coerced ‘voluntary surrenders’ rendered security of tenure provisions ineffective in many states.

The Equity vs. Efficiency Debate

• Historiographical Viewpoint: The central debate surrounding land ceilings revolves around equity versus efficiency.
  • Pro-Equity Argument: Proponents argue that in a land-scarce, agrarian society, land is not just a factor of production but a source of social status, security, and livelihood. Therefore, its equitable distribution is a prerequisite for social justice and poverty alleviation. They cite the inverse farm size-productivity relationship to argue that small farms are not necessarily inefficient.
  • Pro-Efficiency Argument: Opponents contend that land ceilings lead to the creation of unviably small farms that hinder mechanization and capital investment, thereby depressing agricultural growth. They argue for a market-led approach where land can be consolidated for large-scale, efficient, and commercial farming. The Model Land Leasing Act, 2016, reflects a move towards this perspective.

Federalism and Governance Challenges

• Analysis: Land is a State Subject under the Constitution, leading to significant variations in land reform laws and their implementation across states. While the Centre can issue guidelines (e.g., the 1972 ceiling policy) or propose model laws (e.g., the 2016 Leasing Act), their adoption and enforcement depend entirely on the state governments. This has resulted in a fragmented and non-uniform legal landscape, creating challenges for creating a unified agricultural market and policy framework. The success stories of West Bengal and Kerala underscore the critical role of state-level political commitment.