Land Rental Markets in India: Efficiency and Equity Considerations

Despite the fact that land rental is restricted to varying degrees in India, the participation in this market is widespread and it is observed to operate relatively efficiently in 12 villages studied in Andhra Pradesh and Madhya Pradesh. The estimated probit models predicted that the rental market transferred land to those with relatively smaller holdings, but greater ability to make productive use of land, more assets to invest, more adults available for labour and fewer off-farm opportunities. Also land is rented out predominantly to younger farmers and to farmers not involved in off-farm jobs. Renting in is predicted to be relatively higher in the villages which are remote and weakly integrated into mainstream infrastructure and institutions. Land rental markets make an important contribution towards land use redistribution in the villages where land rental is high and where land distribution without land rental is relatively more unequal. The study recommends that existing policies restricting land rental should be eased, and investment towards infrastructure development and off-farm employment generating projects expanded.