Niti Aayog Panel Proposes Model Land Leasing Law

The proposed law will benefit landowners and tenants while freeing up large tracts of land kept fallow by owners for fear of losing it if leased.

A farm in Punjab. Credit: Har Gobind Singh Khalsa/Flickr CC BY-ND 2.0

A farm in Punjab. Credit: Har Gobind Singh Khalsa/Flickr CC BY-ND 2.0

New Delhi: The expert committee constituted by Niti Aayog to review the existing agricultural tenancy laws of various states has suggested a model land leasing law to secure the ownership rights of land owners while also providing security of tenure to tenants. The committee has also called for the facilitation of access to bank credit and insurance for all tenants, including share croppers.

The 11-member committee was constituted under T. Haque, former chairman of the commission for agriculture costs and prices in September 2015 to prepare a Model Agricultural Land Leasing Act based on a critical review of the existing agricultural tenancy laws of states and keeping in view the need to legalise land leasing. The committee had also been asked to suggest appropriate amendments to enhance agricultural efficiency, equity, occupational diversification and rapid rural transformation.

In its final report, submitted to Niti Aayog on April 11, the panel has suggested the enactment of a Model Land Leasing Act, 2016, to permit and facilitate leasing of agricultural land, to improve agricultural efficiency and equity, access to land by the landless and semi-landless poor, occupational diversity and to promote accelerated rural growth and transformation.

The Act also provides recognition to farmers cultivating the agricultural land on lease to enable them to access loans through credit institutions, insurance, disaster relief and other support services provided by the government, while protecting fully the land rights of the owners.

Talking to The Wire, Haque acknowledged that prohibitions and restrictions under existing state laws governing agricultural land leasing had forced the landowners and lessee cultivators to have informal agreements only for cultivating the land and thereby deprived the lessee cultivators of the benefits that were normally due to them. As such, he said, the model law seeks to create security among landowners to lease-out agricultural land. The move, he said, had the potential to put to use millions of hectares of fallow land in the country while also providing landless poor, small and marginal farmers a means of livelihood and protection through bank credit and insurance cover.

The Model Land Leasing Act calls for the legalisation of “land leasing to promote agricultural efficiency, equity and poverty reduction,” saying, “this will also help in much needed productivity improvement in agriculture as well as occupational mobility of the people and rapid rural change”. It also suggests legalising “land leasing in all areas to ensure complete security of land ownership right for land owners and security of tenure for tenants for the agreed lease period.’’ Simultaneously, it seeks to “remove the clause of adverse possession of land in the land laws of various states as it interferes with free functioning of land lease market”.

The new proposed law also demands allowing the “automatic resumption of land after the agreed lease period without requiring any minimum area of land to be left with the tenant even after termination of tenancy, as laws of some states require”. It also lays down that the ‘‘terms and conditions of (a) lease to be determined mutually by the land owner and the tenant without any fear on the part of the landowner of losing land right or undue expectation on the part of the tenant of acquiring occupancy right for continuous possession of leased land for any fixed period.’’

By providing recognition and legitimacy to all land tenants, including share croppers, the new proposal seeks to give them “access to insurance bank credit and bank credit against pledging of expected output”. Finally, it provides an incentive to tenants to make investment in land improvement by giving them the entitlement to get back the unused value of investment at the time of termination of tenancy.

The expert committee observed that there was a “strong case for (the) legalisation and liberalisation of land leasing” since legal restrictions on land leasing have affected agricultural efficiency in several ways. In the past few decades, even socialist countries, such as the Peoples Republic of China and Vietnam, have liberalised agricultural land leasing with significant positive impact on economic growth as well as equity, it reasoned.

The panel said legalising land leasing would greatly help as the ‘‘legal ban or restrictions on land leasing have led to concealed tenancy in almost all parts of the country. Informal tenants are most insecure, as they either have short duration oral leases or get rotated from plot to plot each year so that they cannot prove continuous possession of any particular piece of land for any specified period which could give them the occupancy right, according to law of a state. This provides a disincentive to tenant farmers to make any investment in land improvement for productivity enhancement.” Thus, it exuded confidence that “legalisation of land leasing would ensure security of land ownership right for the land owners, which in turn would provide security of tenure to the tenants”.

Haque further said the proposed law would benefit both the landowners and the tenants while freeing up large tracts of land kept fallow by owners for fear of losing it if it leased.

On the question of how the land owners would gain in this, he said, “In some of the states leasing is illegal and if land owners lease out their land they can lose ownership rights. In some states, after a year of tenancy the governments give ownership rights to the tenants. This prevents owners from leasing out their land.”

“Legalisation of land leasing could be an important contributing factor in this respect. It would encourage large land owners to lease out land without fear of losing their land ownership rights and invest in non-farm enterprises (with appropriate capital and technology support), which is vital for occupational diversification and rapid rural transformation. This will reduce the pressure of population on agriculture and enable small farmers to augment their size of operational holdings by leasing in the land,” he said.

He also said, “many marginal and small farmers would be better off leasing out their land to more viable farmers on rent, while seeking paid employment within or outside agriculture. This would help them to maximise incomes by way of rentals as well as wage incomes. Land owners who are otherwise forced to operate small uneconomic holdings will thus have the opportunity to legally lease out land to other farmers with the assurance of being able to resume possession at the end of agreed lease period.”

Haque said the critical need of the day is to legally allow farmers to lease out without any fear of losing land ownership right and provide support for their upward occupational mobility by way of access to either self-employment or wage employment. Restrictive land leasing had proved to be anti-poor since it led to informal tenancy agreements that restricted the flow of institutional credit, insurance and other support services to the tenants.

The current restrictions on land leasing have also reduced the occupational mobility of landowners who want to take up employment outside agriculture but are forced to stick to their land due to the fear of losing it, he added.

As for the farmer tenants, he said, till now the informal tenants did not have access to institutional credit, insurance and other support services, which affected the productivity of land cultivated by them. “Legalisation/formalisation of land leasing would help improve tenant farmers’ access to credit, insurance and input use and consequently productivity of leased in land. Other things remaining the same, the productivity of leased in land can be as good as that of owner operated land,” he said.

The third important aspect of legalising the land leasing, he said, would be the impact it would have on freeing up more land for cultivation. “Due to legal restrictions, many land owners prefer to keep their lands fallow due to the fear of losing land right if they lease out. Keeping the land fallow results in underutilization of land and loss of agricultural output. The lifting of ban or restrictions on leasing in such cases will result in better utilisation of the available land and labour and increased farm output.’’

Haque pointed out that the mid-term appraisal of the Tenth Five Year Plan too had pointed out how restrictive tenancy laws have prevented optimum allocation of land resources and denied the poor access to land.

On fears among many farmer rights groups that the proposal might pave the way for the entry of corporate house in agriculture in a big way and thus displace the farming community, Haque said at least the proposed Act did not support this move. “It only secures the rights of both farmers and tenants.”

Noting that contract farming has already been allowed in many states, he said now the tenant farmer would also be able to avail the benefits of the contract farming by entering into a contractual agreement, especially for the marketing part, like if they want to sell their produce to some particular group.

It is now up to the state governments to enact the law. Already Odisha, Madhya Pradesh and Uttar Pradesh have evinced interest in this new law, Haque said, adding that once the proposals are widely publicised and their benefits are made known, he was hopeful that other states would also see merit in them.