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Social Security, Compensation and Reconstruction of Livelihoods

Social Security, Compensation and Reconstruction of Livelihoods

The inevitable displacement of indigenous people due to transformation of their habitats for use in industrial projects is one of the consequences of the Indian economic growth story. Many issues abound - those concerning compensation, provision of social security, and reconstruction of the livelihoods for those who are displaced. This article discusses these issues and elaborates on a workable approach.


how can this be brought about in an

Social Security, Compensation

inclusive manner?

and Reconstruction Compensation

The usual approach to involuntary disof Livelihoods placement has been to offer compensation to the displaced. Compensation is based on the value of the land at the time of noti-Dev Nathan fication, which may well be much less

The inevitable displacement of indigenous people due to transformation of their habitats for use in industrial projects is one of the consequences of the Indian economic growth story. Many issues abound – those concerning compensation, provision of social security, and reconstruction of the livelihoods for those who are displaced. This article discusses these issues and elaborates on a workable approach.

This is a revised version of a paper presented at the seminar on social protection, organised by the Institute for Human Development, New Delhi and the Institute of Social Studies, The Hague, in February 2008.

Dev Nathan ( is with the Institute for Human Development, New Delhi.

ne of the bases of Indian economic growth has been the transformation of the hill-forest regions for the use of the mineral resources therein, and the utilisation of the hydropower and irrigation potential. These developments have increased power availability, irrigated water to increase agricultural productivity and the development of an industrial base. The benefits of these developments, however, have been largely concentrated among Indians in the plains, including workers who have secured employment. The inhabitants of the hill-forest regions, the indigenous peoples (or scheduled tribes as they are legally termed) on the other hand, have had to bear the brunt of involuntary displacement and destruction of their traditional livelihoods through mines, dams, etc.

At present too, the stress is on expansion of mining and related industrialisation. Crucial minerals, coal, iron ore, bauxite, etc, are concentrated in the three states of Orissa, Jharkhand and Chhattisgarh, in the regions with a preponderance of indigenous peoples. It follows that a majority of those who face involuntary displacement are those peoples. Along with other displaced people they face c ommon problems of the destruction of their traditional livelihoods. But in the r econstruction of these livelihoods they face problems that are both somewhat diffe rent and more acute than those faced by other displaced persons. These d ifferences will be dealt with later on in this paper.

The key question, however, is common to all involuntary displaced persons. Given that industrial transformation is necessary to shift surplus workers from agriculture to industry, and that this involves dams, mines, factories, etc, all of which require changes in land use,

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than its value at the time of dispossession. Further, the usual bureaucratic corruption means that the amount of money that reaches the dispossessed is substantially less than the price of replacement land. On top of this, the dispossessed have to sustain themselves and their families in the interim, i e, until they are able to buy land and bring it into production.

All of this means that the usual calculations of compensation on the basis of the price of land are quite insufficient for any meaningful resettlement on land. On top of this, one must add the factor of the weakness of the land market, even weaker in the case of indigenous peoples, with the restrictions on sale of land.

On the other hand, there are also difficulties in the displaced buying replacement land. With a slow rate of absorption of surplus agricultural population in industry, there may not be that much land for sale. If the dispossessed suddenly came into the land market, it would push up prices well beyond the rate at which they were compensated.

In China, where there is a limited land market, the price of land cannot be and is not used as the basis for the calculation of compensation. This is substituted by the annual value of output (AVO). What is interesting is that it is not the value of net output but gross value of output, i e, including both labour and input costs, that is taken into account (Cernea 2007). In this way the AVO is likely to be double that of the net income.

Rather than in buying land, compensation money could also be invested in an enterprise. The risk involved in investing in an enterprise when there is an assurance of other income, say from agriculture, is quite different in the risk involved in investing in an enterprise as the only source of income. As it is, the indigenous people are not quite attuned to enterprise; even their involvement in non-farm

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enterprise is much less than that of other communities. To this difficulty in facing risk must be added the limited market in their areas of settlement or resettlement. And lacking the necessary social networks, migration to urban centres with larger markets is not an option for dispossessed indigenous peoples.

The deductions from calculated compensation, the changes in land prices, the narrowness of the land market, and the necessity of at least subsistence of the displaced families until livelihoods are recreated, all together mean that the payment of compensation on the basis of the replace ment cost of land is insufficient to achieve the objective of recreating livelihoods at the earlier level, leave alone improving livelihoods.

The Objective of Compensation

What is the objective that compensation is meant to achieve? In a normal, voluntary sale of land, it is sufficient (fair) if the seller receives the market price of land. But dispossession is not a voluntary sale of land. It is an involuntary sale of land. Land in this case represents to the unwilling seller not its price as land, but a source of livelihood. What the person loses is not the (market) price of land, but the livelihood. This is the reason why the objective of compensation has to be not adequate/fair compensation for the land taken, but the recreation of livelihoods of the displaced. The government of India’s National Rehabilitation Policy, 2006, states the objective as being “improving the living standards of the displaced population” (GoI 2006: 1.2).

The consequence of the insufficient and poorly conceived compensation and the resultant failure to recreate livelihoods is impoverishment (Cernea 2003). A study of displaced households from a coalmining project in Jharkhand, showed that they coped by (1) settling on relatives’ land in other places; (2) head-loading in the adjacent local sale coal dump; and (3) running pilfered coal on cycles to local markets – an illegal activity (Tony Herbert and Kuntala Lahiri-Dixit 2004). Similar impoverishment and coping are documented in many other studies (e g, Walter Fernandes 1997; Alex Ekka and Mohammed Asif 2000).

Given the inadequacies of compensation, it has been suggested that a system of social safety nets could be added to the compensation system (Ravi Kanbur 2003). Kanbur even suggests that “… the stronger the system of safety nets, the less the need for project specific compensation to be elaborate and complete”.

At present the safety net available in India is that from the National Rural Employment Guarantee Act (NREGA). This would enable each household to get 100 days employment for one person, at a rate around the existing minimum wage. At best, this safety net would provide about Rs 5,000 per year, per household. While even this would be a welcome addition to meagre income from the above-mentioned activities, it would not amount to maintaining pre-displacement levels of living.

A comprehensive social net system is certainly needed. It can be of help as a short-term measure when incomes fall, as they will with involuntary displacement. But can or should the displaced spend the rest of their lives on social security? This goes counter to the meaning of social safety net, which should be a temporary measure when incomes fall, for whatever reason. If social safety substitutes for the reconstruction of livelihoods, that would turn the displaced into life-long coupon clippers, though coupon clippers of an inferior variety compared to those whose coupons are share dividends. For the elderly displaced such a safety net would be okay, but it is unlikely to be what ablebodied women and men capable of work would want.

The same problem arises with the proposal of Banerjee et al (2007) to turn the one-time compensation into an equivalent monthly income, which they even call a pension. Should young women and men in the prime of working lives be turned into pensioners? The pension proposal presumes that people are only interested in the level of consumption they are able to sustain, and do not bother about the way in which this consumption is attained, whether through a pension or safety net payments. It ignores the human need for labour, for gainful labour.

Both safety net and pension proposals are superior to the present system of one-time compensation. But all of these proposals have the weakness that they leave the reconstruction of livelihoods as the responsibility, including financial responsibility, on the displaced themselves.

Investing in Livelihoods

The approaches to recreating livelihoods have followed three tracks: (i) provision of jobs in the mine/factory; (ii) providing replacement land; and (iii) investment by the displaced in own enterprises.

Not many jobs in mines and mineral plants can be given to former agriculturists who can be semi-educated and lowskilled workers. But the likelihood of such jobs are often held out as “a bargaining chip” (World Bank 1969, quoted in Tony Herbert and Kuntala Lahiri-Dixit) to get agreement from those who will be displaced. Jobs are then given to a few middle men who claim to represent the communities (Tony Herbert and Kuntala Lahiri-Dixit 2004).

“Land for land” is a possibility for recreating the livelihoods of agriculturists. But it is not as though there is spare arable land available for this purpose. In irrigation projects it could be possible to acquire ceiling-surplus lands within the command area and transfer them to those who are displaced. The ceiling for non-irrigated land is higher than for irrigated land. Holdings that go above the ceiling after irrigation, could be taken over for redistribution. It is also likely that the displaced would be happy to receive irrigated land, which would improve their livelihoods as compared to their previous holdings of non-irrigated land. But though such a measure is possible, there does not seem to be any discussion about the possibilities, pointed out in Cernea (2007). It should be noted that in a case in Japan, the government was ready to create irrigated paddy terraces for those who would lose land for a dam. But one does not know of any such instances in India.

The weakness of the system of provi ding capital to the displaced and leaving it to them to develop their own micro-enterprises has already been discussed above. This approach is particularly unsuitable for indigenous peoples, with little experience of enterprise.

In order to recreate livelihoods what is needed is a separate investment for this

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purpose. If the investment is to be in agriculture, it should be in more intensive use of land, so as to enable higher incomes in smaller plots of land. Systems of irrigated cultivation, either rice paddies in terraces or vegetable growing, with adequate m arket linkages could be taken up.

For non-farm employment the option clearly is one of labour intensive manufacture, such as in garments, food processing, etc. Many countries and centres in India itself have used straight-off-the-farm lowskilled labour in labour intensive manufacture. Such labour-intensive manufacture could be taken up with supplementary capital in or around the areas for the principal mineral-based industries. In fact, many villages in China contain just such combinations of labour-intensive units, along with less labour using, more technologyintensive units. Many of these villages also contain some agriculture, often maintained in order to meet the Chinese regulation requiring each village to deliver a certain amount of grain to the state.

Sources of Investment Funds

In the case of additional investments, such as in food processing or garment factories, these investments will earn profits for their owners. The general infrastructure investment around the key factories/ mines will be carried out by the government. Specific additional investment may be needed, for instance, in reducing emissions or dust to make the area usable for these other types of investments.

In the case of investment in improved agriculture, or micro-enterprises, where would the additional funds come from? Many mines or mineral-based enterprises earn rents, i e, surplus above the usual profits, due simply to the better quality of minerals in certain locations. Indian iron ore, for instance, is of higher concentration than that used in most other countries. The rent due to Indian iron ore could be captured by the government through specific taxes, and these tax revenues could be used to fund the additional investments needed to recreate livelihoods of the displaced.

Even in cases where there are no rents of this type, it should be noted that there are many instances around the world of the displaced being allotted a share of earnings of enterprises set up on their lands (Cernea 2007). In Colombia from the early 1980s a percentage of benefits from hydropower plants has been allotted for the development of resettlement areas. In Brazil, the 1988 Constitution includes the principle of reinvesting a portion of royalties from hydropower in resettlement areas. Canada’s HydroQuebec Agreements grant that local indigenous communities, by giving up their lands, are also direct investors in hydroprojects and, over and above compensation, provide for a share of profits to be used by these indigenous communities. After widespread protests in many parts of China, the Chinese government has also passed many rules to increase compensation, pay compensation retroactively and provide for relocation funds. Both Asian Development Bank and World Bank policy accept the principle of the dispossessed sharing in the benefits from the investment.

If it is politically accepted that those involuntarily displaced by development projects have a right to have their livelihoods recreated, not necessarily the same old livelihoods but improved ones, then the funds for the additional investment can certainly be found. Rents, a portion of regular earnings, and taxes can all be used for this purpose.

Gender Issues

In compensation and resettlement schemes, attention is not paid to the specific position of women. Compensation money, linked to the ownership of land, is paid to men. Women of indigenous communities, who usually do not have ownership rights in land, but have access to forest and other common properties which are also lost in dispossession, are not separately identified for compensation. In resettlement too, houses and plots of land are allotted to men. The National Resettlement Policy (GoI 2007) now proposes that land should be allotted in the joint names of women and men; but the proposed Jharkhand R esettlement Policy, which is supposed to be modelled on the NRP, makes no such reference to land allocation in the names of women.

Gender issues come to the fore in the economic transformation brought about by forced displacement. The indigenous

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p eoples have continued with largely s ubsistence-oriented economic systems. Accumulation is not the norm, and is even discouraged by practices of redistribution. Along with subsistence-oriented production (which does not rule out production for exchange on the market) there is an approach to labour which is one of labour for need, and not one of a quasi-maximisation of income. Labour for need or a procuring approach to labour, cannot go along with a capitalist system of production. Wor kers, for instance, cannot work when they need some income for consumption and then go off work, when they have sufficient income, returning when they need to. Capitalism forces a discipline of working regularly at the behest of capital.

At the same time traditional systems of non-accumulative subsistence production are breaking down as indigenous peoples find that these are insufficient to meet growing needs, such as for education or modern healthcare, and new aspirations. In internalising these new needs and aspirations, however, there is an observable difference between women and men, and between the old and young. Women, with their greater responsibilities for household food security and the future of their children, seem to have internalised to a greater extent than men, the needs of the new economic systems. Among men, youth too have a greater affinity with income maximisation than the elderly.

The destruction of indigenous peoples’ traditional economic systems by involuntary displacement, forces them to relate to the capitalist economic system in a way different from earlier. Systems of labour

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based on procurement for consumption have to give way to systems of income maximisation and accumulation. These changes are more likely to be brought about, with less pain of change, if women are given a more prominent role in the resettlement process and in the recreation of livelihoods.

But the forced destruction of traditional ways of producing and living brought about by involuntary displacement, brings to the fore the question: should indigenous peoples have the right of refusal? The right of refusal is closely connected to another point: the right of refusal is necessary for indigenous peoples to bargain for a better deal, one that allows for a reconstruction of their livelihoods in an equal if not improved position.

Eminent Domain or Free, Prior and Informed Consent?

The bargaining position of indigenous communities, however, is weakened by invoking the principle of eminent domain, i e, the right of the state to acquire individual land for public purpose. While a cquiring of land for actual public purposes (i e, for provision of what are public goods, such as infrastructure, defence, and the like) can be justified under eminent domain, it is a moot point whether eminent domain can be invoked in the case of industrial enterprises. At best the Indian state system allows for consultation but does not require consent for a cquisition of lands. In areas, as in northeast India or in parts of Jharkhand, where law does not permit the alienation of i ndigenous peoples’ lands to nonindigenous peoples, a manner of consultation may be required, but it can always be overridden by eminent domain.

The Indian Supreme Court, in the S amatha judgment, has held that all m ining activities in indigenous areas should be carried out through a cooperative of the indigenous peoples and private mining should not be allowed. And that, further, at least 20% of the net income should be spent on education, health and communication, etc. But this judgment has been completely ignored in practice and eminent domain still holds sway in India.

The recent Jharkhand government draft on resettlement policy, however, makes a welcome break with eminent domain and invokes the process of “free, prior and informed consent” for all activities likely to lead to displacement. In the Philippines, the doctrine of free, prior and informed consent has been written into the Indigenous Peoples Rights Act of 1997, as the consensus of all members of the Indigenous Cultural Communities/ Indigenous Peoples to be determined in accordance with their respective customary laws and practices, free from any e xternal manipulation, interference, c oercion, and obtained after fully disclosing the intent and scope of the activity, in a language and process understandable to the community.

Bakun, the home of the Kankanaey-Bago people in the Cordilleras, is acknowledged as the pioneer in the matter of free, prior and informed consent (FPIC) in the Philippines.1 After having rejected applications for logging and mining,

The third application was for diversion of a river for hydro-electric power… after one week of discussion, the community selected 36 elders, men and women, 60% of them men, to decide on the case. They decided yes. This was in 2004. There was negotiation before the vote and the company agreed to benefits asked for by community – not all the water should be diverted, so that local irrigation and fish passage could continue; two scholarships to be given every year; establishment of a pre-nursery school; construction of farm to market road; delivery of electricity to the baranguay (village); and construction of piped water system. The last condition is yet to be met. The road is completed, as the company also needs it. The scholarships have started. Negotiations are going on for land for the pre-nursery. The company also agreed to pay P 500,000 (about US $10,000) annually to the baranguay (village) government; this is also being done. The whole baranguay of 316 households benefited from this. The Bakun Indigenous Tribes Organisation (BITO) represented the tribe and NCIP facilitated it. There have been many more applications for mining gold, silver, and manganese in area. Present sentiment is ok for small-scale mining, which is done by community members, but not for large-scale mining. The government is pushing for large-scale mining. There are areas for large-scale mining which can be done by the community. We are not sure how this can be done. But the community can do this. At present we do not have the knowledge or the capital to carry out such large-scale mining. We would like it to start only when we have the financial capital and knowledge.2

“Free, prior and informed consent” does not mean that only small-scale mining should be taken up by members of the indigenous communities themselves. The communities can negotiate with corporations and settle the terms on which mining leases can be given, as is being done in Papua New Guinea (CSE 2007: 314).


Is there a difference between the return from the price of land and the return from land as livelihood? If labour could be as productive on land as on the alternate asset that could be acquired with the sale price of land, then there would be no difference. Labour could as well be applied to land as to any other productive asset and yield an equal income. But that is not the case. A lot of labour, with its embedded knowledge, is specific to a kind of production. Agricultural labour, in particular, is quite specific.

This specificity of agricultural labour is often accompanied by a poor level of literacy. Poor literacy means this labour is not very amenable to alternate uses.

Often the next best use to which agricultural labour can be applied is that of simple earth work. The agricultural labour of the agriculturist enables her to extract a return much in excess of what could be earned from the next best alternative in earth work. This difference is not rent, which is unearned income due to differences in natural productivity; but it is a surplus due to a particular type of skilled labour. When that labour is forced to work in a manner where that skill does not come into play, then there is a loss.

If the land compulsorily acquired could be replaced by other land of productivity at least equal to that of the land given up, then there would be no basic livelihood problem in involuntary displacement. But the point is there is not such equivalent available, which is why the “land for land” displacement is a non-starter.

Can the substitution of capital for land (which is what the payment of compensation amounts to) provide an equivalent livelihood? It could if the agriculturists’

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labour could use capital as productively as it could use land. Capital in the hands of the displaced does not by itself provide a return, unless it were put in a bank, where the return may be less than that from the equivalent land.

Capital to be used to create income requires labour with a particular skill in utilising the productive asset that is purchased. These are different skills and require different types of knowledge. Further, in running an enterprise, even a selfowned enterprise, there is need of the r equisite knowledge of doing so. This is particularly difficult for those who have not acquired a business sense, and such business sense is not so easily acquired in a short period of time. As a result, the manner in which capital can be used by the displaced is unlikely to be such as to provide an equal income as from land. Merely looking at the fact that an asset, land, has been transformed into its money equivalent, capital, ignores the fact that the labour for utilising the two kinds of assets, land and money capital, are quite distinct and different from each other. Those who have one kind of knowledge may not, usually do not, have the other kind of knowledge.

This then is the fundamental problem with the use of compensation, which means the transformation of one kind of asset (land) into another kind (capital): those who have the knowledge to use the first asset may not have the kind of knowledge required to productively use the s econd asset. The money equivalence of the two hides the knowledge and labour difference between the assets for livelihoods. As far as the displaced are concerned, they are being forced to substitute one kind of labour (agricultural labour) for another kind of labour (enterprise labour) and their productivities in the two kinds of labour are not the same.

The difference in the productivity of labour in agriculture and in some other enterprise is particularly marked in the case of indigenous peoples. It is this opportunity cost of displacement from agriculture that is not covered by compensation that forces a change in the manner of earning a livelihood.

If social security were to play a role in sustaining the level of income of the d isplaced, then it must cover the gap between pre-displacement and post-displacement income. For that, the income level below which social security comes into play must be at least equal to the agriculturists’ pre-displacement income. While one cannot expect a social security payment to permanently cover this difference, and the displaced may also not want to be in the position of permanent social security benefit receivers, there are still two important roles that social security can play. First, as there is learning by doing in utilising new productive assets, social security can help to cover the income gap during the learning process. Second, an assured minimum of income will enable the displaced to take up more productive but more risky investments. That is, it could reduce the extent of risk aversion of the displaced.

But, as pointed out above, particularly with indigenous people there is a narrow limit to which one can expect them to adapt to the business methods needed to successfully run an enterprise, even a micro-enterprise involving only family labour. Consequently the recreation of livelihoods through jobs in labour-intensive and relatively low-skilled industries must play a major role in recreating livelihoods for the displaced from indigenous communities.

Combining such labour-intensive and low-skilled industries with the mediumtechnology and high-technology of mines and metallurgy, can be made part of the package of investment in an area. Since the locations of such metal and mineralbased industries will inevitably have superior infrastructure, compared to other locations in these districts, the labourintensive industries could also be located in these areas. It might also require some extra concessions to investors to persuade them to locate in these areas, rather than in their present clusters, such as in Tiruppur, Ludhiana or Bangalore. Of course, the possibility for such labour-intensive industrial investment depends on the growth of demand for these products and on the ability of entrepreneurs to tap into this global demand. But new entrants into these production chains could target entry into the lower quality segments of these markets, where entry might be

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easier than in the higher quality s egments. Additionally, they could seek investment by established firms in the business, rather than seek to set up new enterprises with inexperienced local entrepreneurs; or through joint investment of outside with local partners. In one way or the other, the point is to combine labour-intensive manufacturing, requiring low-skilled labour of the type likely to be readily available, with mineralbased industrialisation.


1 This discussion on free, prior and informed consent in the Philippines is based on Dev Nathan (2006).

2 Discussion with Mario Morales, Chairman of Council of Elders of Bakun Indigenous Tribes O rganisation (BITO); and Amos Beta-a, Project Manager, BITO, November 2006, in Nathan 2006.


Banerjee, Abhijit Vinayak, Pranab Bardhan, Kaushik Basu, Mrinal Datta Chaudhury, Maitresh Ghatak, Ashok Sanjay Guha, Mukul Majumdar, Dilip Mookerjee and Debraj Ray (2007): “Beyond Nandigram: Industrialisation in West Bengal” in Economic & Political Weekly, 28 April.

Centre for Science and Environment (2007): Rich Lands, Poor People: Is ‘Sustainable’ Mining Possible? (New Delhi: CSE).

Cernea, Michael (2003): “For a New Economics of R esettlement: A Sociological Critique of the Compensation Principle” in International Social Science Journal, March, No 175, Basil Blackwell; also in “An Exchange on the Compensation Principle in Resettlement – Michael Cernea and Ravi Kanbur”, on Ravi Kanbur’s web site, Cornell University.

– (2007): “Financing for Development: Benefit-Sharing Mechanisms in Population Resettlement” in Economic & Political Weekly, 24 March.

Ekka, Alex and Mohammed Asif (2000): Development-Induced Displacement and Rehabilitation in Jharkhand, 1951 to 1995: A Database on Its E xtent and Nature (New Delhi: Indian Social I nstitute).

Fernandes, Walter (1997): “Hundred Years of Displacement in India: Is the Rehabilitation Policy an Adequate Repsonse?” in Walter Fernandes and Vijay Paranjpye (ed.), Rehabilitation Policy and Law in India: A Right to Livelihood (New Delhi: Indian Social Institute).

Government of India (2006): National Rehabilitation Policy (NRP-2006), [Draft], Ministry of Rural Development, Department of Land Resources.

Government of Jharkhand (2007): Jharkhand Rehabilitation and Resettlement Policy, [Draft].

Herbert, Tony and Kuntala Lahiri-Dixit (2004): “Coal Sector Loans and Displacement of Indigenous Populations: Lessons from Jharkhand” in Economic & Political Weekly, 5 June.

Kanbur, Ravi (2003): “Development Economics and the Compensation Principle” in International Social Science Journal, March, No 175, Basil Blackwell; also in “An Exchange on the Compensation Principle in Resettlement – Michael Cernea and Ravi Kanbur”, on the author’s web site, Cornell University.

Nathan, Dev (2006): “Local Governance, Development and Identity of Indigenous Peoples: An Overview”, paper for IFAD, Rome.

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