Land Reforms in India

"Aunty, I read something called ‘Land reforms’. What is that Aunty? What do they reform in Land?”

“Ha-ha, Raju! I am glad you asked! This is not about reforming the land! It’s much more important!

Let me start with a question; we eat rice daily. How much you buy it for in the market?”

“Aunty, it’s around Rs. 40!”

“Good, now will it be good, if it’s Rs 20 per kg?”

“Of-course Aunty! Its 50% discount! We would save lots of money! Why, is the price of rice going to come down?! ”

“Ha-ha, I wish it comes down! Then we can get soon get you the one-plus one mobile! Lol!”

“Ha-ha, then do some magic and get it reduced aunty!”

“It’s not magic Raju, it’s simple economics; if the supply of rice is more, then its price comes down in the market! Isn’t? So, we produce more rice, then cost comes down!

Ok, guess how much rice is produced from say, from land measuring a hectare?”

(A hectare is 10,000 sq meters, .i.e. a square of 100x100 meters. It is 2.5 times of an acre)

“No idea Aunty! May be some 1000 kg?”

“2,000 kg is the average Raju. It varies as the soil and climatic conditions vary widely in India! Dindugal in Tamil nadu produces around 4,000 kg/hectare, whereas in Rajasthan it’s less than 1000 kg!

Ok, now, how much we were producing in 1950s? Around 600 kgs! So, there is an improvement of around 250% in last 60 years! This may look good!

But, during the same time, other countries improved by 450%!

Needless to say, higher the ‘yield per hectare’ (called as productivity), better is for the country!”

“I get it aunty! I am sure all those in the govt must be raking their brains to increase the productivity of rice, as it’s a staple crop in India! Why just rice, they must be working to increase the productivity of every crop! I have read about the green revolution Aunty. Technology must be helping them!”

“Yes Raju, technology does help. But, then there are other issues too.”

“Raju, you have been asking for an i10 car for you from your dad? Isn’t? Now, imagine your dad gives you a new i10 tomorrow! But, then he says that, it has been hired for a year, and you have to give it back the owner after 2 years. And you can use this as taxi, but, 50% whatever you earn goes to the owner. And all expenditures are yours!”

“Lol! Aunty, So, I use it as taxi, and also for my personal purpose? Why can’t he just buy and give me one?!”

“Ok, that we will see later. Now, can you tell me why you feel that you want your own car? Why can’t you use this hired car for 2 years? After all it’s the same i10?”

“Oh no aunty, it will not be like my own car! Then I will love it and take care of it better! If I have to return it after 2 years, why will I invest more on maintaining? I will use as taxi for getting my minimum to put petrol and pocket money! Anyway, rest 50% goes to the owner! But, aunty, above all, I won’t feel the same happiness or enjoy the status of owner of a car, that could boost my confidence!”

“Ha-ha! Well said Raju! You talked about almost all important the aspects of land reforms now!

Replace the car with land! What happens? If you are given land for agriculture on rental basis, you tend to do the same! You don’t maintain it well, as it will go back to the owner! You don’t put that to best use, as anyway 50% goes to owner! And above all, you don’t feel the status and confidence!”

“Oops! Aunty! Great! Now, don’t tell me that, most of the land in India is under this hiring scheme!”

“Raju, yes, most of the land in India is under this hiring scheme. It’s called as tenancy. Farmers take the land on one or two year lease and work on that. They give a portion to the land lord and keep the rest to them. Almost 90% of the land was cultivated this way before independence. Now, it may be around 50%!”

“Goodness! I have read that, land should be given to the tiller, and that is the best thing to happen. Why still we are keeping 50% land under this tenancy? Can’t we make laws and give the land to the tillers permanently?”

“We have laws Raju! Almost all the states and the governments passed law on this; called as land reform laws. They also executed the law. But the results are not so good! Prof. M.L. Dantwala observes; ‘By and large, land reforms in India enacted so far, are in the right direction; and yet due to lack of implementation, the actual results are far from satisfactory’

Let me explain! Indeed, the land reform has four basic components: first, to give the land to the tiller! This can be done, only if the owner has large tracts of land, so that we can give away all lands except a minimum that he needs for his survival. So, the govt made a law that, one family can own only 10 hectares of land, and rest of them have to be given to those who are actually tilling the land on rent basis. This is called as ‘ceiling act’, and it fixed a ceiling on the quantum of land that can be held by any individual.

Second, is, about the improving the agreement conditions between the tiller and land owner. This is required, as still there will be owner-tenant relationship, in cases where the land lord holds land within the ceiling, but unable to cultivate himself due to various reasons. These are called as ‘tenancy reforms’.

The third was on consolidation, which meant consolidating small holdings of land. This was required, as consolidating will help in better use of technology like tractors etc.

The fourth, (some call this as first!) was, setting right the historical wrong; that is abolishing the system, where there were many intermediaries, like Inamdars, Jagirdars etc., who used to hold 1000s of hectares of land, on the behalf of govt, and fleeced the tillers to cultivate and give huge share to them!

These four components were implemented across the states with different success rates. Needless to say, those states where the govt are more committed to land reform did well.”

“Aunty, all these four concepts look so good! Why where they not implemented? What were the obstacles?”

“Raju, the fourth one; abolishing the intermediaries was done! But, for others; people by-passed the ceiling law, retained huge tracts of lands, by just showing that the lands are owned by many! (benamis!) Regarding the reforms in the tenancy, it’s still ineffective, as most of the transactions in rural India are informal and thus, less chance of regulation by law. On consolidation front, we did some 1600 lakh hectares were done. Still lot to go.

The obstacle seems to be lack of political will to drive the implementation. In a democracy, political will matters a lot!

For example, so many land issue are pending in various courts. The governments have not created enough land courts or officers to clear the pendency. No strict action was taken to identify the benamis and seize the land. The land reform agenda appear to have been put on the back burner now!”

“Why Aunty? Why will the governments do that? Won’t it get them good will from all?”

“Raju, in the democracy, the governments are formed, based on the votes. Unless all the illegal ways of getting votes are closed, the political leadership will try to earn the votes by dubious means, which include use of muscle and money power. And both these come from the landed aristocracy, who own huge tracts of land under benami names! “

“Hmm. I understand Aunty! Hope elections get better or good parties come to power to complete the unfinished task of land reforms”

“yes Raju! Indeed, Naxal movement is strongest in those places where less is done in land reforms! Look at other countries like Philippines, which went for a comprehensive reform, where they supported the new land owners with farm inputs, capital and marketing. We need innovation and strong will be make the land reforms succeed in India. May be youngsters like you will one day complete this unfinished agenda!”

“Yes Aunty! I hope too. Because, unless we make the foundation strong, and ensures the productivity increase, how can we become a super power? How can a farmer lacking motivation and confidence, contribute in making our country great?”

“Well said Raju! I hope these words reach the hallowed halls of the Parliament!”

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Authored jointly by Shri. Ezhil Buddhan, ITS and Shri, Manivannan, IAS.

Black Money

“Aunty, what is Black money? What is the black market? I keep hearing so much about it. Why is it said to have been stashed away in Swiss banks?”

“Raju, I am glad you asked! Indeed when I was a child, I thought black money referred to the colour of the note or currency kept in some black box! Ha-ha!

To understand these, let’s assume a village ruled by a good king, with a population of 1000. He has a small army of 50 horsemen, and 50 soldiers and a small government with few officials.

Now, salaries have to be paid to the army and the officers? In addition, there will be other office expenditures too? To maintain all these, the king did what all other kings used to do, that is, collect a share from what the citizens produced. This share collected by the king or his government is generally called as Tax.

This was collected in the village market, when the citizens came to sell their grains or products they manufactured. This was called as ‘sales tax’. The king got Rs. 60,000 in this.

Meanwhile, the king came to know that, there are some items that were not produced in his village, but imported from neighbouring villages that were also sold in the same market. The king imposed a tax on them too. This was called as ‘customs duty’. This gave him Rs. 20,000.

The king also came to know that some items manufactured in his village were not sold in his market, but taken out of the village to be sold to other villages. So, the king taxed them at the place where they were manufactured. This was called as ‘excise duty’. This gave him another Rs. 10,000.

Then the king also taxed the rich people in his kingdom. This was called as ‘Income tax’. This gave him Rs.10, 000. Thus he got a total of Rs.1 lakh, and his revenue and expenditure was thus balanced. He could run his government efficiently and keep people happy.

But, the following year, a problem arose. The income came down to just Rs.70, 000. The worried king tried to find the reason. The reason was simple: his officers showed records where sales in the market had dropped. But, his intelligence department said that, production had actually increased, but it’s not coming for sale to the market!

It meant that some of the products were being sold secretly outside the market. What was sold outside the market was not known to government officers, hence not taxed, and thus the government lost the tax! Besides, absence of correct information about the quantum of produce and sales, led to wrong policies from the govt.

So, the king sent his officers to search and arrest all those who sold products outside the market. It was a difficult task, as people sold it secretly in every place possible, like their own homes, fields, roads etc. All these illegal trades happen in secret and is called as ‘black market trade’.

Thus ‘black market’ is a collective term used to describe any location, where any illegal transaction happens. It could be any place, including   homes, offices, even open roads or cars where such illegal deals are struck and goods exchanged!

The unaccounted money that is earned in such transactions is called as ‘black money’! Black money is nothing but normal money, but is earned by illegal means by cheating government officials and accounts.

The money earned in this manner cannot be deposited in the bank, as the government can verify the bank account and easily identify illegal money! So this black money remains as cash only!

But, soon, the black marketers started sending the money to banks outside the village, which was beyond the control of the king, where no one asked for accounts. One such ‘village’ is Switzerland, where the source of bank accounts are not questioned, and hence many black marketers have deposited their cash there.

A few black marketers, make false entries in their account books, and show black money as legally earned money. This is referred to as ‘money laundering’. If this false accounting is done involving someone from another country, then it is referred to as ‘Hawala transaction’, where our black money is exchanged for currency of another country.

Now you understand ‘black money’ and ‘black market’ issues, Raju?!”

“Very well Aunty! Can government not stop this black marketing and black money?”

“It’s very difficult Raju. Can the government monitor 24x7 what every person is selling or buying? So, as long as people transact without billing or accounting, there will be black money. Therefore, unless people demand a bill for every sale or purchase made, black money can’t be controlled.”

“Does it mean that in any transaction we have, we should insist on bill and not do anything without bills?”

“Yes Raju! Because, every bill generated is a document and it helps government officials calculate taxes due correctly. For every bill not given, some black money is created!

What imposes a danger to the country is that such black money can be used to buy from mercenaries, items  that are banned by government like  guns, illegal drugs etc. Now do you realise the dangers of having black money in the country?

“Oh yes Aunty! I understand. From today onwards I will do my bit to reduce black money. I will insist on being given a bill for every transaction, Aunty!”

Vani aunty smiled at Raju. She wished that every youngster in the country does the same. 

Budget!

“Aunty, what is this budget thing? Is this something similar to what Amma talks to Appa about monthly expenditure?”

“You are quite close! Budget is about writing down the expenditure you are likely to incur in the future. Thus, it’s planned expenditure. Expenditure can’t happen without income! So, you write down both: expenditure and income. In short, it’s about your wallet! How much money will come there, and where it will go! In-fact  the word ‘budget’ comes from the French word -bougette, which means ‘purse’!”

“Okk! I never understood this budget! They present it in the parliament and keep raising the taxes on all, and everybody gives their comment on that!! Why it is so important Aunty?”

“It’s important for all, because, unlike the house budget, the country’s budget, will tell where the government is spending money! It will also tell where the government is getting the income! As the expenditure is done on public benefit and income is also taken from public, it’s important for us, the public!”

“You mean, our income and expenditure also will be affected by that?”

“Yes, it will be! For example, if you are planning to buy your dream bike, Yamaha, its cost may go up or down depending on the budget! If it’s cost is 50,000 rupees now, and if the sales tax is increased by 5%, then your cost goes up to 50,000 plus 2,500, this 57,500! So, your dad has to make provision for that in his budget!!”

“Ok aunty! I got it! So, budget is all about planning the expenditure and income for the coming year!”

“Yes, my dear! Govt also plans lots of things! Like building dams, roads, hospitals etc. The expenditure associated is called as ‘plan expenditure’. Some people call this as ‘capital’ expenditure, as it creates an asset/capital!”

“All the money of the government goes on such capital works every year?”

“No, it goes on something called ‘non-plan expenditure' or its also called as 'revenue expenditure'.”

“What is this ‘non-plan aunty? You just now said all is planned in the budget, and now you say 'non-plan'!! And what is this ‘revenue expenditure’?! Looks like a perfect oxymoron!!!”

Aunty laughed out loud (LOL!)

“Well said Raju!! There is no scarcity of oxymoron in the government! But, seriously, this ‘non-plan’  is about all expenditure that is recurring, and which is consequent to your plan expenditure!”

“Like?”

“Like, once you buy your Yamaha, you would want additional money for petrol every month?"

“Of-course, aunty!  At-least 15 liters! And, if I get lucky this year to woo that pretty Zoya, then it's 30 liters!!”

“Bad boy! First get good marks in the college and get a job! Then all girls will stand in queue for you! Else, this Zoya also won’t come near you! And you won’t have enough money to maintain even your Yamaha!!”

“Lol! Aunt, leave that! You better teach me Budget!”

“What to teach now?! You have already learned! You have planned expenditure, like buying a bike, and then the expenditure that you did not ‘plan’, but which comes along, the cost of ‘petrol’, called as ‘non-plan expenditure’, which is recurring in nature.”  

“Funny aunty! That’s all is Budget?! Only ‘plan’ and ‘non-plan expenditure’?! And you never told me why the oxymoron ‘revenue expenditure’ for the ‘non-plan’ expenditure!”

“Oh yes! The name is because, traditionally, the governments used to balance the ‘non-plan expenditure’ with that of the ‘revenue’ they used to get by taxation! So, it was called as ‘revenue-expenditure!”

“If the tax money goes to only 'non-plan', then, where will the money come for planned expenditure, like buying Yamaha?!”

“Dear, for that, the government generally borrows money!”

“Government borrows?! Why? I thought they have all the money in the world and they can print more notes if they want money!!!”

“They have lots of money which comes from taxes, but the expenditure is also huge Raju! Imagine the huge army, air force and navy! Police, government offices, hospitals, roads, ports etc!  So, they taxes are not enough and you can’t keep increasing the taxes! So, the government borrows!”

“Okk! But, whom does it borrow from? World Bank, Asian Development Bank etc?”

“You are right! It borrows from them also, and it also borrows from the public, by issuing bonds! Public buy the bonds,and thus the money goes to government  I will explain later how government raises funds by bonds. I will also tell you, how printing rupee notes endlessly are not a solution and how it will lead to everybody having lots of money and thus the cost of commodity will go up!”

“Oh yes! All that later, now only as much as required to ask some smart questions to my ‘Finance commissioner’ and impress him!!!”

“Ha-ha! Ok Raju! You know learnt the expenditure side of the Budget; but, if you want to ask smart question to the Finance commissioner, you should know the income (revenue) side too! That is about the taxes, duties etc”

 “Yes aunty, I know that! The ‘direct tax’ is imposed by the government on the individuals and companies on their income, and the ‘indirect tax’ levied on the products/commodities sold in the market!”

“Very good Raju! You are right! We get our revenue from taxes and duties, like excise duty, customs duty etc.”

“Waittt aunty!! Where did these excise and customs come from? Why so many different types? Can’t we have just 2 categories? Direct tax, and indirect tax?”

“Yes, it could have been simple as that. But the system of revenue collection evolved as per the need. When the expenditure of the government increased, say, due to war etc, then the government used to explore ways to get more revenue thus introducing a new type of tax! Thus, taxation grew from simple to complex over a period of time.  

To start with, ‘customs duty’ was the earliest income to the king! When the traders used to travel and sell their produce in different kingdoms, they used to meet the King and seek his permission and support in selling their ware in his/her kingdom. Needless to say, they used to give a small part of their ware to the king as goodwill.

Later this goodwill almost become a custom, a norm, and soon become a compulsion, or a duty!  Kings issued order on how much to collect and how to collect as ‘custom duty’! ‘Customs officials’ were appointed to collect it at the entry points of the kingdom!

Thus, when the goods or commodity comes from outside the kingdom/country, then this ‘customs duty’ is imposed on the goods at the entry point itself! That’s how you will find ‘customs’ offices at all the entry point of the state, like the ports, airports, road borders!”

“Interesting Aunty! I understand the ‘customs duty’ now! Next is about the excise duty. What is it? Is it some additional customs duty?”

“No Raju, it is not in addition to Custom duty! But, it is the local version of Customs! Meaning, that, it is the duty imposed on the goods manufactured inside the country!”

“But, then Aunty, are we not levying sales tax on them when they are sold?”

“You are right Raju; we are indeed levying sales tax on most of the goods sold. But, in addition to that, we also impose a levy on some of the goods, as and when they are manufactured! This is call ‘excise levy’. The government ‘excises’ it’s right to collect a portion of what is manufactured within the country too!

And interestingly, while the ‘sales tax’ is a percentage of the cost of the good or commodity, the ‘excise duty’ is not on the value, but, it is on the total quantity manufactured!

For example, if a packet of 100 gm coffee powder is sold at Rs.100; the sales tax may be 10% of it, that is, Rs. 10. Whereas, the ‘excise duty’ will be collected at the rate of Rs. 3 for every 100 gm of coffee manufactured! So, the excise duty is normally based on quantity and not on its cost!”

“Interesting Aunty! Smart way of collected revenue! It will also mean that government gets ‘excise duty’, irrespective of whether it’s sold or not! Aunty, is there any connection between ‘excise’ and ‘alcohol’? Why these two words, ‘excise’ and ‘alcohol’ are always associated?!”

“Oh that! That is because, the alcohol industry, what is called as ‘liquor’ colloquially, is one of the major commodity that pays ‘excise duty’, to the extent that the government keeps a officer posted to each distillery to collect the ‘excise duty’! That’s how excise is closely associated with liquor business!”

“Ok aunty! I get it! So, it means, all the commodities either manufactured inside or imported from outside are under either under excise or customs net?”

“Yes. Almost! But, there are some exceptions. Items, which are consumed by the common man, like vegetables, fruits etc are not taxed in any manner. And in the direct tax, farmers are no more taxed! It’s only on individuals who have high income and companies that make profit!”

“Got it aunty! And, if the government wants more revenue, it can tweak the rates and thus get a higher share? Or it can bring more commodities under excise or customs?”

 “Wow! Now you have started talking like a real king!”

“Don’t make fun of me Aunty! I am just learning! I also guess that if more taxes are there, it will make people unhappy. Isn't?”

“Yes, my dear! People will get unhappy when the taxes are increased, as they have to pay more. And if the taxes are very high, people will start buying less, or at times, start cheating the on the tax, by trading secretly!”

“Oh, I understand! It’s like the shopkeeper selling without bills! That sale will not be reflected in his accounts, and thus he need not pay tax for that part to the government?”

“You are 100% right Raju! Many do that! But, it does not start and stop with the shopkeeper! Even the manufacturer has to agree to sell it to the shopkeeper without bills! You get me?  The whole cycle of manufacturing and selling has to happen secretly, without accounts!”

“Oh, yes, I get it! And the same can be done with ‘customs’ too! That’s how he had smugglers smuggling the goods into the country evading the ‘customs duty’! Thus they are able to sell it at a cheaper rate and make huge profit!”

“Yes, remember, the dons you see in Hindi movies?!”

“Lol! Yes, aunty! How can we forget them?! So, if taxes are exorbitant, then it leads to non-compliance and associated smugglers and dons?!

And that, taxes and duties have to be balanced to ensure that they are complied by the public willingly!”

“Yes my dear! Then you will be a good king!”

“Oh thanks Aunty! Let me be an average king, then I will think of becoming a good king!

Introduction!

Hi!

This blog is an attempt to understand the government and how it works in India, and make it relevant to the citizens. This blog is to help the youngsters, civil service aspirants and others, who want to understand governance, participate in it, and make it work for people. Thus, this is also a small attempt towards good governance!   

This blog is authored by civil servants, from different services, who have come together to demystify the government, and give their perspectives of the government. As they are still learning, there perspectives may change over time! The views and perspectives are personal and does not refer to any person or particular government. This is for purely academic purpose,, and a step towards adding knowledge to the subject of 'Public administration in India'. We would request and encourage the readers to ask questions, debate and even correct us in our perspectives!