LARGE FARMERS IN THE LEASE MARKET – How and Why Do They Enter the Market? Are Marginal Farmers Affected in the Process?

C. S. Murty
JEL codes: 
Working Paper No. 55 April, 2004

1. The importance of economically dominant farmers is increasing in
the lease market for agricultural land. This is particularly evident from the
NSS data of 1981-82 and 1991-92 on the percentage of operational holdings
and operated area under tenancy and on the shares of large farmers
in total tenanted holdings and tenanted area. Increase in the significance of
large farmers in the lease market is a disquieting development because:
m Taking advantage of tenancy laws the farmers can get conferred
ownership or occupancy rights on tenanted lands under their control.
m They can take advantage of the laws and cause hardship to petty
lessors (landlords) and, in particular, to institutional lessors.
m They can displace petty peasants from the lease market.
m They can expose poor tenants to a process of self-exploitation by
vying with them for land in the lease market.
2. The once isolated incidents of the practice of large farmers taking
land on lease by now (1991-92) spread to new regions and got intensified in
certain others. Thus in the states of AP, Assam, Haryana, Karnataka, Kerala,
Punjab, Rajasthan, and to a lesser extent in MP, UP and TN large farmers
have become a force to reckon with in the lease market.
3. The modus operandi of large farmers seeking to edge-out their competitors
in the lease market is that they offer rent in fixed cash, invariably at
the beginning of the season, to their lessors in return for the lease of land.
The farmers appeal to the compulsions of the lessors for secure rental
receipts by offering to pay fixed cash rents. Petty peasants, being less able
to do so, lose out to these farmers in competition for tenanted land.
4. The increasing dominance of large tenants does not, however,
appear to be at the expense of the poorest of the poor marginal tenants.
Although marginal tenants got dislodged in some states consequent upon
an increase in the importance of large tenants between 1981-82 and 1991-
92, there are also states where both classes of tenants secured greater
hold on the lease market. The proportions of holdings and area under tenancy
with large farmers and those with marginal farmers bear no relationship
whatever in the 1991-92 cross-section data of major states. But it
should not come as a great relief, for it is possible that marginal tenants are
now obliged to pay higher rents than earlier in trying to stay in competition
with large tenants.
5. The notion that the costliness of new technology compels poor peasants
to voluntarily opt out of the lease market and the resultant increase in
the supply of land for lease enables large farmers to gain ascendancy in
the lease market has little support in the data of recent times. There is only
one state, Haryana, where the increase in the real cost of cultivation between
1981-82 and 1991-92 culminated in a decrease in the hold of marginal
farmers and a simultaneous increase in the importance of large farmers
in the lease market. The cost factor is also found unimportant in
influencing the leasing behaviour of marginal farmers even when the crosssection
data of Indian states pertaining to 1991-92 is examined. The peasants
do not appear to be opting out, rather, they are being driven out.
6. High wage rates seem to favour mechanization of farming operations
and with it the operation of large holdings. Farmers who are constrained
to increase their ownership holdings because of ceiling laws are,
therefore, making their way into the lease market for agricultural land.
7. The entry of large farmers into the lease market may further capitalist
development in the agricultural sector. But in the process numerous
prospective tenants from the poorer sections can get distanced from the
lease market. The institution of land tenancy which derives its legitimacy
on the ground that it would help poor peasants to gain access to tenanted
land and thereby would fulfill their hope of advancing on the agrarian ladder
will be of no avail. It can also give rise to a situation where, petty tenants, in
trying to compete with large tenants for tenanted land will end up paying
rents higher than the usual to their landlords. Besides, sooner or later, the
process can have a dampening effect on real wages of agricultural labour
and can stunt the growth of rural employment.
8. Therefore, it seems important to make tenancy laws sufficiently
stringent to restrict the entry into the lease market only to petty peasants.
The quantitative significance of the incidence of tenancy among large farmers
is high enough, though in a relative context, to enact and enforce such
exacting laws. The surplus land distributed in the country up to September,
1991 was 19.48 lakh hectares while the tenanted land under the control
of large farmers (with operated land in excess of 10 hectares) as of 1991-
92 was 21.63 lakh hectares. Apart from the land leased-in by this class of
farmers there is also the land which was leased-in by other relatively higher
classes of farmers. And what is more, even the NSS estimates of land
under lease, though are on a far higher side compared to the leased-in land
as per Agricultural Census, are admittedly underestimates themselves. By
preventing large farmers from entering into the lease market, it should be
possible to bring down inequity in the distribution of operated land, an objective
which is sought to be achieved by allowing tenancy. Such a step is also
desirable in the interest of wages and employment in the agricultural sector.
Also, as a means to increase the access of land to the rural poor, the policy
of barring large farmers from the lease market assumes importance, in
view of the closing-in of the possibilities to acquire and distribute land accruing
on account of ceiling laws.
9. In sum, it is necessary to rid the large tenant of the lease market in
the interest of the poor peasant, who yearns to lease-in a piece of land. The
notion that the petty peasant is opting out of the lease market because of
costliness of new technology seems unfounded. The peasant is not opting
out, rather the large farmer is forcing him to withdraw from the market by
appealing to the need of his lessor for secure rental receipts and by paying
him rent in fixed cash. It is in the interest of the large farmer to drive out the
petty cultivator from the lease market and thereby gain control over it, be5
cause mechanization of farming operations, in the context of high wages, is
making heavy demands on him to expand the size of his operational holding.
With the scope to enlarge the ownership holding having decreased,
more because of the deterrent effect of the land ceiling laws, the large farmer
has no option but to lease-in land to expand the size of holding to put his
capital assets to optimum use. Large farmers may contribute to capitalist
development in agriculture. But development of capitalist relations may
lead to proletarianisation of large sections of the rural working classes.