8. Land for Development: Market Versus Non-market Mechanisms

In this chapter we provide a critique of the traditional mechanisms to transfer land from agriculture to other developmental activities. We show that both the market mechanism and the Eminent Domain have several serious shortcomings, especially in the Indian context. Eminent Domain (Land Acquisition) Law empowers governments to take away private properties for public purpose. In many cases, the affected owners approach the court to seek enhanced compensation. Indeed, disputes and litigation over compensation is an international phenomenon. In this paper, we compare the compensation provided by the Government (executive) and the Courts (judiciary). Our analysis indicates that the compensation for expropriated properties is regressive—Compensation for high-value [low-value] properties is greater than [less than] their market value. We argue that the land pooling mechanism is a better alternative for ensuring availability of land for development. We argue that the land pooling is more efficient as well as equitable than the traditional means of land transfers. We demonstrate how suitably designed land pooling mechanisms can protect property rights, induce voluntary participation in land transfer to and encourage productive investment.