The Strong Case for Legalising Tenancy
Needed for consolidation and subsidy reform
If the government is serious about transforming agriculture, it must legalise land leasing. Landholders must be able to lease out land without the fear of losing ownership. This is possible by enacting a legislation that will set out the broad framework for states to make land leasing and tenancy legal. The shadow of zamindari no longer looms over rural India. The farmer now needs land consolidation for economies of scale.
Tenancy was abolished post-Independence with the aim of creating an equitable and efficient agrarian economy. The restrictive laws of the 1960s and 1970s made tenancy informal, insecure and inefficient. Though agriculture accounts for 14% of the GDP, it employs 49% of the total workforce, and 64% of the rural workforce. The overdependence has resulted in high level of fragmentation of landholding, coupled with the limited transfer of workforce to non-agriculture sectors, leading to low percapita rural incomes, inefficiencies and persistent poverty. Legal land leasing will encourage big landowners as well as owners of tiny plots too small to be viable on their own to lease out land without the fear of losing ownership. Those thus freed up from cultivation can move into new occupations. Leased in contiguous, tiny plots will permit efficiencies that would improve productivity. Legalising land leasing will pave the way for efficient and targeted subsidy disbursal to the actual farmer rather than to the landholder. Besides reducing leakages, inefficient use of inputs like fertilisers or restricting crop option, the income support option is also WTO-compliant. Legal sanctity will enable tenant cultivators to access institutional credit, insurance and a host of support services. It will allow for farmers to form companies that will improve their access to markets and higher incomes.
Tenancy is alive in rural India — 10% of the 140 million farms are cultivated by tenant farmers — the lack of a legal framework has meant insecurity, low incomes and lifelong poverty for them. Legalising land leasing will change this, allowing for a true rural transformation.