The Land Acquisition, Rehabilitation, and Resettlement Bill introduced in Parliament is a terrible piece of work. It is a Luddite proposal that threatens all economic development.
Some critics have focused on its high compensation norms. But its worst provisions are for Social Impact Assessment (SIA) reports and mandatory rehabilitation and resettlement (R&R). Every piece of land acquired, no matter how small, will require an SIA, to be later reviewed by an expert committee, followed by a government survey, followed by actual acquisition proceedings. Any decisions can then be challenged in the courts. These procedures could take years, delaying all industrialization and urbanization.
R&R is made mandatory even for privately negotiated land purchases exceeding 50 acres in urban and 100 acres in rural areas. This will hit all but small projects. R&R will not apply to projects covered by 16 existing laws, including atomic energy, national highways and Special Economic Zones. The bulk of projects will still be covered. The Bill assumes, implicitly, that all development is harmful because it displaces people and destroys traditional jobs. The Bill does not view change as good, or development as a path to improved opportunities and incomes. This is classic Luddite thinking.
When the Industrial Revolution began in England in the 19th century, a group called Luddites started wrecking textile machinery because it displaced traditional hand-spinners and weavers. Luddites saw industrialization as a recipe for pauperization of artisans of all sorts. They couldn't see how industrialisation would transform living standards.
Economic historian William Baumol has shown how, through history across the world, living standards for most people were just a bit above starvation level, save for pampered ruling elites. The concept of natural progress did not exist — the Golden Era was in the past (Ram Rajya in India, or the Roman Empire in Europe). European living standards declined after the Roman Empire's peak in the 3rd century. England caught up with the Roman living standard only in 1850. France and Germany followed in 1870. But after that, the industrial revolution sent living standards skyrocketing tenfold.
This could not have been predicted by any SIA by the Luddites in the 19th century. An SIA by its very nature focuses on immediate problems. It will say very little about positive dynamic consequences in the future because the latter are inherently unknowable, and often turn out to be trends never known before in history.
For example, the auto revolution in the 20th century displaced millions of people associated with earlier transport based on horses, mules and bullocks. Cars polluted the atmosphere and killed hundreds of pedestrians and cows. If auto-makers had been obliged to do SIAs and R&R for all affected, no auto industry would ever have come up. We would have remained stuck with horse carriages. Would that have been inclusive development? No, it would have been destruction of development.
When computers became cheap enough to be used everywhere, they displaced millions in offices, banks, industries. Shops were decimated by e-commerce. Postal services were decimated by e-mail. Sales of cameras, music CDs, radios, calculators and many other items plummeted because cellphones could substitute all of them. Suppose the computer and cellphone industries had been forced to do SIAs and R&R before being allowed to take off — would they have taken off? And would we have been better off without them? Of course not.
Modern technology and organization has transformed incomes and social indicators in the last two centuries since the Industrial Revolution. This has constantly uprooted existing forms of work, occupations, and social and industrial organisation. Economist Joseph Schumpeter called it 'creative destruction', the constant smashing of existing systems to create new and better ones. Far from being an agent of pauperization, as believed by the Luddites — and as assumed implicitly by the new bill in Parliament — radical change has sparked the fastest growth of prosperity in history.
The benefits of creative destruction are huge, for government revenue as well as for individuals. Governments everywhere have used increased tax revenue to finance safety nets for those displaced, and help them adjust to creative destruction. In the US, over three million jobs are destroyed and three million created every month, without R&R.
Governments everywhere have encouraged change, often subsidizing new technologies, but have also provided safety nets and retraining for those hurt by creative destruction. The financial burden for safety nets is typically borne by governments, not by new companies with exciting new technologies.
Now, some projects, like dams, can displace entire towns and dozens of villages. In such cases R&R is obviously essential in advance. Governments everywhere provide that. But only in India do we have the absurdity of demanding an SIA for every land acquisition no matter how small. Only in India is compulsory R&R proposed even for privately negotiated purchases of just 51-101 acres. Only in India is the financial burden of adjustment to be paid upfront by the agents of change, not the government. This is, in effect, a huge tax on change, so huge that little change will occur. These retrograde clauses must be changed.
We need policies for the 21st century, not a throwback to Luddite notions of the 19th century.