Reforming Restrictive Tenancy Laws

It is widely accepted that transforming agriculture in the medium to long-run requires fundamental reforms in land institutions as well. But the terms of reference of the High Powered Committee of Chief Ministers for Transformation of Indian Agriculture not include land reforms.

It has to be noted that during its first term the government headed by Prime Minister Narendra Modi had set up an expert committee on land reforms, chaired by T Haque, which recommended a Model Land Lease Act (2016).

Current Status and Challenges

Majority of the state governments have either put a ban on agricultural land leasing or imposed restrictions on land leasing. The T Haque committee has studied the problems and has made a strong case for legalizing the land leasing and its liberalization in India. The key arguments are as follows:

• There is a legal ban on leasing which has led to concealed / informal tenancy in most part of the country. Such tenancy is insecure and informal and counterproductive. Most informal tenancy are either oral or rotation basis {one plot one year, another plot next year so that the tenant does not prove continuous possession}. Due to this, a tenant farmer would not make efforts/investment in the improvement of the soil/ productivity. Thus, if land leasing is legalized, it would secure the ownership, and the tenant would be incentivised to make efforts towards improving productivity.
• Insecure land leasing would reduce the mobility of landowners who have the desire and capability to do a business/ job outside agriculture. This is because they need to stay where their land is; for they may lose the land if they lease out and migrate. This is anti-growth and anti-poor. Legalization will result in formal tenancy documents which can be used to access institutional credit.
• Due to legal restrictions, the landowners would prefer to keep their lands fallow (so that they don’t lose the land). Keeping land fallow results in underutilization of the land and low farm output.
• The restrictive land has prevented the optimum allocation of land resources and denied the poor access to land. The ban on leasing has forced the poor to enter into informal arrangements.

Why there is an urgency to reform land tenancy reforms?

The size of the average holding has been declining in India for long. This has been illustrated in the graph shown below:

This decreasing size of the landholding limits the economic viability of such tracts, especially since they do not provide a respectable income to farmers. The restrictive tenancy laws have also generated informal tenancy that is said to be much higher than formal tenancy in magnitude. This is adversely impacting land-use efficiency.

As per the official records (NSSO, 2012-13), only about 10 per cent of agricultural land is under the tenancy, down from 20 per cent in 1953-54. But experts believe that official estimates hugely under-report actual tenancy.

Why farmers are hesitant to lease lands?

The main reason for hesitancy on part of landowners in leasing out land is the fear that losing out lands ownership if they leased out for long due to the absence of tamper-proof land records with the revenue departments. Hence one of the lowest hanging fruits is to digitise and geo-tag land records and link them with Aadhaar and the bank accounts of farmers.

This will create a centralised, transparent and easily assessable land records system. It can then help any class of farmers operating a piece of land to access bank credit and crop insurance.

Even though efforts are underway in this area, the results are far from satisfactory. Only three states viz. Odisha, Sikkim and Tripura have completed 100 per cent computerisation of land records. Many others have computerised 80 to 95 per cent of their land records. Liberalising land lease markets, with computerisation of land records and geo-tagging of farms, though challenging, can give a high pay-off with enhanced capital formation. Crop insurance could also be linked to this platform.

Issues due to Informal Tenancy

It is generally believed based on several micro-level surveys, that about a third of the agricultural land in India is under the tenancy. But they are oral tenants who are most insecure. This has resulted in the following problems:

• They do not have the legal sanction and are not recognised as farmers.
• This deprives them of availing institutional credit, crop insurance, government-sponsored social benefit schemes and relief support.
• The fear of eviction from the land also disincentivises them from making long-term investments in land improvement.
• This results in low capital formation and hurts farm productivity. Even the landowners fear losing their proprietory rights if they lease out for longer periods.
• As a result, many of them prefer to keep their lands fallow. Rough estimates suggest that about 17 million hectares of cultivable land in the country is lying fallow.

Even China has lately revised its land lease laws, where farmers can lease out their land, even to corporate entities for cultivation for up to 30 years. Such a move can help attract long-term investments in high-value crops — those grown in orchards.

Learning from Examples

The T Haque committee report has cited examples of Kudumbashree in Kerala and AP Licensed cultivators Act, 2011. The learning from these two are as follows:

Kudumbashree Mission

• The Kudumbashree Mission in Kerala is assisting the poor by organizing Joint Liability Groups (JLG) of women and assisting them to land lease, though informal. This has benefitted women the most.
• Under the initiative, women are motivated to become members of joint liability groups (JLG). They then cultivate leased land with assured access to agricultural credit from NABARD and other banking institutions, increasing their returns from farming.

Andhra Pradesh’s Land Licensed Cultivators Act

• Recognizing the need of the informal tenants, AP government enacted the AP Licensed cultivators Act, 2011 to provide a license to cultivators including tenants so that they can access institutional credit. However, this law did not get the desired result because of objection by the landowners, fearing that they would lose the land to tenants since they are registered as licensed cultivators.
• Andhra Pradesh’s Land Licensed Cultivators Act has provided suitable channels to deliver loans, subsidies, crop insurance and relief support. It does so by issuing eligibility cards to tenants, who raise crops with the explicit or implied permission of the owners.

Andhra Pradesh’s and Kerala’s innovative institutional experiences offer key lessons for policymakers to liberalise restrictive land leasing laws in the country, while fully protecting the land rights of the owners.

Model Land Lease Act 2016

The Model Land Lease Act drafted by the expert committee headed by Dr T. Haque seeks to permit and facilitate the leasing of agricultural land to improve access to land by the landless and marginal farmers.  It also provides for recognition of farmers cultivating on leased land to enable them to access loans through institutional credit.

Features of the Act

Definitions

A lease is defined as a contract between the landowner and cultivator, who uses the land owner’s land for agriculture and allied activities for a mutually agreed specified period. Leasing in means taking land from an owner (who is leasing out his land) for use.

Land Lease Agreement

The lease agreement between the landowner and cultivator will include information pertaining to:

• the location and area of leased out the land,
• the duration of the lease,
• the lease amount and the due date by which it has to be paid, and
• terms and conditions for the renewal or extension of the lease.

The lease period and lease amount will be based on a mutual agreement between the landowner and cultivator.

Additionally, the lease agreement will not confer any protected tenancy right on a cultivator.

The lease agreement may or may not be registered (as mutually agreed), and will also not be entered into any record of rights.

Enforcement of lease agreement

The tahsildar or revenue officer of equal rank will be responsible for:

• enforcement of terms of the lease, and
• facilitating the return of the leased out agricultural land to the owner on expiry of the lease period.

Rights and Responsibilities of Land Owner

• The landowner will give possession of the leased out land to the cultivator on the first day of the lease.
• He will be entitled to automatic possession of the land on the expiry of the agreed lease period.
• He can put the leased out land for use such as sale, gift, mortgage, etc. However, this should not affect the cultivator’s right to cultivate the land till the end of the lease period. He will also be responsible to pay all taxes and cess on the land.

Rights and Responsibilities of Cultivator

• The cultivator, to whom the land has been leased out, will be entitled to an undisturbed possession and use of this land.
• He can use the land only for agriculture and allied activities.
• Further, he cannot sub-lease or mortgage the land. He will be eligible to raise loans from banks and other financial institutions without mortgaging the leased in the land.
• He will be entitled to compensation from the landowner for any improvements or fixtures that he makes on this land.
• He will also have the right to surrender land to the landowner within a time period as specified in the lease agreement.

Termination of Lease

The lease agreement may be terminated on grounds including

• Failure of the cultivator to pay the lease amount after a grace period of three months,
• Use of land for purposes other than those specified in the agreement,
• Sub-leasing of land or damage caused to it by the cultivator.

Dispute Resolution

• The cultivator and the owner can settle disputes between them using third party mediation, or gram panchayat, or gram sabha.
• If the dispute cannot be settled by third party mediation, either the landowner or the cultivator can file a petition before the Tahsildar or an equal rank revenue officer.
• The officer has to adjudicate the dispute within four weeks. In such cases, an appeal can also be made to the collector or district magistrate.

Special Land Tribunal

State governments will constitute a special Land Tribunal, which will be the final authority to adjudicate disputes under the model Act.  It will be headed by a retired high court or district court judge.  No civil courts will have jurisdiction over disputes under the model Act.

Repeals and Savings

The provisions of the Model Act will override any other law in force in the concerned subject from the date of it’s coming into force.  Cases pending under any other law in force will be governed by the provisions of that particular law.  The model Act will not have any retrospective effect.

Reforms in the land markets are pending for a long time due to lack of political will. The current government has the political mandate to carry out these reforms. It is an opportune time for the High Powered Committee of Chief Ministers to carry out fundamental structural reforms in the institutions which govern land markets.