Laws enacted at the state level restrict the sale, purchase, use, and lease of land. These laws depress the value of the land and constrain the choice of livelihood while limiting the farmer’s income. Land ceiling laws restrict the size of agricultural land that an individual or a family can own. The ceilings vary across states based on factors like the kind of crop sown, soil fertility, and family size. In Andhra Pradesh, a family of 5 can only hold 4.05 ha of Class A land (Andhra Pradesh Land Reforms (Ceiling on Agricultural Holdings) Act, 1973).
These laws have had a detrimental effect on the land market in India. As a result of caps on land size, agricultural land in India is highly fragmented and dominated by small and marginal holdings. The 2021 Situation Assessment Survey of Agricultural Households done by the National Sample Survey Office showed that the average size of household ownership holdings was only 0.411 ha, with small and marginal farmers making up 82.9% of all holdings.
In addition, laws depress the leasing market. In Andhra Pradesh, land leasing is legal, but if an owner wants to end leasing and take the land back from the tenant, the owner must give at least 50% of the land to the tenant. Leasing has to be for a minimum of six years, and the tenancy can be terminated only by an application to a special judicial officer. Under these conditions, why would anyone lease their land?
A Centre for the Study of Developing Societies (CSDS) survey showed that over 70% of farmers want to leave farming. But land is a matter of pride in much of India. Families and individuals may not want to sell their land but merely lease it out. Leasing allows people to retain their land, generate revenue, and pursue alternate career options. But the overly restrictive leasing laws have meant that leases do not typically occur in the formal market.
The agricultural census data from 2015-16, which relies on formal land records, report that only 0.36% of the land area is leased in Andhra Pradesh. This is in stark contrast to the NSSO data, which relies on household surveys, where reports show that 33% of the land is leased.
This discrepancy suggests that much of the land leasing in Andhra Pradesh is happening informally. Informal agreements suffer from enforcement problems and low capital investment in leased land. The average monthly income for an agricultural household in Andhra Pradesh is only Rs 8,768.
Inability to liquidate the prime asset traps families in low-productivity activities. A survey of 18 states and over 5000 respondents reveals that only 5% of farmers sold their land in the preceding five years. In March 2016, NITI Aayog proposed a Model Land Leasing Act. The proposed act suggests the legalisation of tenancy. It allows for conditions of lease to be defined mutually by the tenants and landlords. Andhra Pradesh should adopt this Act and allow farmers the freedom to exit farming, without having to sell their land.
The opinions expressed in this essay are those of the authors. They do not purport to reflect the opinions or views of CCS.