Nepal’s land use legislation is flawed: What should be done? 

The Land Use Act (2019) and the more recently endorsed Land Use Regulation, if implemented, have the potential to cause the next political unrest. 

Since 2012, Nepal has invested heavily in developing a suitable land-use plan. After a series of deliberations and amendments to previous legislation, Nepal introduced the recent Land Use Act. The need for the act stemmed from the necessity of efficient and sustainable use of land resources, long-term economic benefit to all sectors, and increasing agricultural productivity. Some of the highlights of current legislation are the classification of land into different categories and sub-categories, the prohibition on using land in any other ways than classified for its specific purpose, and the prohibition on buying and plotting of agricultural land without prior approval from the Land Use Council, fine of up to NRs 100,000 on agricultural land left barren for more than three years, and prohibition of construction on agricultural land. But it is important to comprehend that these very clauses have the potential to become catastrophic for the economic prosperity of Nepal. 

Concerns over haphazard land use in Nepal are not unnatural. Given similar concerns, many countries have adopted tens of thousands of land-use reforms. One positive aspect of it is that Nepal can reap a late mover’s advantage from others’ experiences of successes and failures. 

Numerous studies of African, as well as OECD countries, have classified land use planning into two broad categories—(i) public policies aimed at steering land use which includes spatial planning, land use planning, environment and building code regulations, and (ii) public policies not targeted at land use which include fiscal policies. While the former defines how land is permitted to be used in the economy, the latter influences how individuals want to use the land. International experiences speak in favor of influencing land use through fiscal policies which provide some leeway for the private sector/individuals to choose how they want to use the resources at their disposal. On the other hand, directly steering land use by imposing restrictive zoning regulations has proved to be perilous to the economic health and it has been suggested that such inflexible planning, especially single-use zoning, should be avoided at all costs. Another important lesson from the global context is the pre-requisite of exclusively apportioning the jurisdiction of land use planning and policy formulation and implementation under the purview of the local government. Unfortunately, Nepal has adopted the restrictive, stringent, and inflexible version. 

The exclusive role of local governments in land use planning has been acknowledged as a prime factor leading to successful land reform. This is because they are better connected to the land in question. A central planner would never be able to accumulate sufficient information to devise the most efficient land-use plan. The Nepali legislation mandates the federal, provincial, and local governments to prepare their separate land use plans, such that the provincial plan should align with the federal plan, and the local plan with the provincial. While the local government is responsible for land mapping and preparing the land use plan based on demographic and economic factors, the federal government has reserved the right to frequent interventions citing the lack of capacity of local governments. The entire scenario inflicts much skepticism regarding the efficient allocation of land for specified purposes. 

This skepticism can also be viewed from a property rights perspective. The beauty of private property rights is that it enables the most efficient use of resources as owners are rational and always try to gain maximum utility and profit by attesting their available land to the most beneficial activity. For this to hold true, it is, however, important that the property owners have exclusive authority to determine how the property is used and have the right to exchange resources at agreeable terms. Without these basics, the incentive to work for the betterment of the land is minimal, which leads to inefficient land use. The land-use legislation in Nepal threatens this very notion of private property rights as it not only bars owners from using their land at their discretion but also requires landowners to take approval from the Land Use Council prior to selling agricultural land. This kind of violation of property rights is what led to the failure of land reform in Zimbabwe and Algeria, resulting in a rapid outflow of capital to foreign nations. As a result, both countries required extensive support from foreign aid to overcome the situation. 

The land-use legislation in Nepal aims to increase agricultural productivity. However, the policymakers have failed to realize that the effectiveness of reform depends upon the ability of farmers to engage in productive agriculture. Productive agriculture further depends upon the availability of irrigation services, quality input, modern equipment, and other infrastructures. Given the inadequate supply of such facilities, the agricultural productivity in Nepal is bound to remain low despite the allocation of ample fertile land to the sector. As per the experience of European nations, despite the allocation of most productive land to agriculture, agricultural productivity might not increase as long as problems of inadequate investment in the sector persist. 

This legislation will also cause a massive shift in the supply and demand of different categories of land. This, in turn, has a significant bearing on the future. Let’s take the case of industrial land. Given limited land for industrial purposes, the prices of these lands will increase multifold which translates to rise in the cost of production and prices of goods and services. The residential land is bound to experience a similar fate. Given the sizable increase in spending on both housing and goods and services, the general welfare of the people will decrease. On the other hand, as the prices of agricultural lands will be directly tied to their productivity, they will see a fall in demand and thus a multifold decline in prices. This will only cause inequality to increase and create a massive divide between the people in the country. This also opens yet another door for corruption and cronyism. 

The current land use reform approach is imprudent. Instead, Nepal should take gradual steps in ensuring effective land utilization. Some of the best examples of such gradual reforms are by establishing a private land market, demarcation of state and communal land for agricultural purposes, and providing fiscal incentives. Nepal should indeed take a pause and explore the alternatives.

This article was originally published in Nepal Live Today by Ayushma Maharjan on June 13, 2022.