Dialogue  January-March, 2007, Volume 8  No. 3

Land Tenure System in North East India : A Constraint for Bank Financing?

M. P. Bezbaruah


In India’s North Eastern region the land tenure system in the hill areas, inhabited mostly by tribal population, is markedly different from the system found in the plain areas. As in most other parts of the country, in the plains of the North East individual rights over land holding are transferable and buying and selling of such rights are ordinarily unrestricted. However in the hill areas individual rights over land is yet to take the form of full property rights in the sense that transfer of these rights is subject to restrictions if not virtually possible. Non-transferability of holding rights renders land unsuitable as collateral for the purpose of securing institutional credit to land holders. This has long been cited as a constraint on extension of institutional credit in the hill economies of the region. The present write up attempts to deal with the following aspects of the land tenure systems in the region vis-à-vis the problem of collateral: (a) which segments of the population and the economy of the region are affected, (b) the genesis and evolution of the existing pattern of land tenure systems, (c) consequences of the land tenure system, (d) the way to move forward.

The Segments of the Population and the Economy Affected:

As mentioned above, the plains of the region are by and large free from the problem. That leaves out the Brahmaputra and the Barak Valleys of Assam (80% of the geographical area of Assam), the Imphal Valley of Manipur (10% of geographical area) and the plain areas of Tripura (40% of geographical area) from the prime concern of this exercise. It is worth mention that the plains as usual are much more thickly populated than the hills and accommodates about 70% of the population of the region. Nonetheless the parts of the region comprised of the states of Arunachal Pradesh, Nagaland, Mizoram and Meghalaya, and the hill districts of Assam, Manipur and Tripura still accounts for a significant part of the economy of the region in which penetration of bank credit is hindered by non-establishment of transferable property rights on land.

The Genesis and Evolution of the Existing Pattern of Land Tenure System:

The genesis of the cleavage in the land tenure systems in the hills and the plains of the region lies in the difference in the nature of traditional agricultural activity. Agriculture in the plains has been settled. Land revenue being an important source of income for the government, land had been surveyed, titles had been settled giving ownership to individuals or institutions, and land holders were given title documents from the governments. Holding rights conferred in this manner are by and large heritable and transferable, and hence these rights are of the nature of full property rights as in other parts of the country. Obviously such land tenure system does not constitute an institutional hurdle for delivery of bank credit backed up by land as collateral. If credit delivery and absorption is still weak, it is because of other supply and demand related factors.

In contrast agriculture in the hills, traditionally, has been shifting in nature. Such agricultural practice obviously makes the population nomadic with no settlement of population in a fixed location. Land used to be communally held and the usufructory right to land used to be distributed to families according to customary norms by the village council or the village chief as the case may be1. Absence of land revenue did not necessitate cadastral survey and settlement of land ownership. In this context it is perhaps significant to note that the system of administration established in the plains of the region under British colonial rule was not extended to the hills. The hills were classified as ‘excluded’ or ‘partially excluded’ areas and tribal communities living in such areas were allowed to continue with their traditional arrangements of self-governance. After independence, in an attempt to integrate these areas while preserving the tradition of self-governance of the tribal communities, the Sixth Schedule was incorporated in the Constitution of India. The Sixth Schedule provided for District and Regional Councils for the erstwhile ‘excluded’ and ‘partially excluded’ areas and these institutions were expected to integrate such areas with the modern system of administration while preserving the traditional autonomy and self-governance of the tribal people. But these arrangements failed to meet the aspirations of the newly emerging political leadership of some of the tribal groups and movements demanding autonomy of various degrees followed. The Central Government responded to their demands by carrying out several rounds of reorganisations of the region and curving out new states2. These post independence statutory developments, however, have not generally resulted in convergence of traditional tribal self governing institutions and modern state oriented administrative structures, with the former retaining considerable legitimacy and acceptance especially in matters relating to customary rules and norms3.

Meanwhile penetration of market forces, the practice of settled cultivation and also urbanisation has induced settling down of hill tribal population in fixed locations. The process has been instrumental in emergence of individual holdings in hill areas. For instance, in Nagaland as far back as 1976-77, 86% of the holdings covering 89% of the area under terrace cultivation was wholly owned and self operated (Report of the Agricultural Census quoted in Agarwal, 1987). This development has, however, not been backed up with cadastral survey and land settlement which could have been followed up with giving documents conferring legal ownership rights over holdings. The evolution of land holding rights to full property rights has hence remained incomplete4.

In those parts of the hills of the North East where individual holdings of land has emerged, transfer of the holding is possible and it takes place frequently but within the tribal population only. Details of the modalities of such transfers differ from state to state and in some cases even within the state. But the broad pattern is as follows: Transfer by sale of individual holdings within a village can take place within members of the same tribe, and such transfers are recognised by the village community. In some cases, sale deeds on plain or stamped papers are executed by the transacting parties to record the transfer. But the process does not result in any formal record or documents conferring land holding rights. Inter-tribal transfer of individual holdings of village land is generally not in practice, though such transfer of communally held land are know to be in practice. In towns, transfer of land holdings among individuals of even different tribes but of the same state is generally permissible. But transfer of land holding rights to non-tribal is prohibited by law in all the hill areas to prevent alienation of tribal land. Certification of holding rights by traditional authority and/or by state government representatives has come under practice in most areas. Mizoram has made a bigger stride in this context than the other hill tribal areas of the region. Here the revenue department has notified 22 towns and 38 large villages where Land settlement certificates (LSC) are given (Lianzela, 2006). But by and large the process of certification is neither systematic nor exhaustive. Thus the process of evolution of property rights in the hill areas of the North East is fraught with ambiguity and absence of definite road map.

Economic Implications of the Land Tenure System:

From the above section it is clear that at present in the hills of north east we have broadly two systems of land tenure existing side by side: (a) community ownership of land in areas where shifting cultivation is still in vogue: here households enjoy user rights to land allocated to them by traditional authority and (b) individual ownership of land which is transferable only within members of local tribal community.

The first type of land tenure is not only problematic as far as use of land as collateral for advancing bank credit is concerned, but does not even create incentives for investment for land improvement and conservation of its long term use-value. With shortening of jhum cycles due to population pressure and reduced availability of land for shifting cultivation, economic and environmental sustainability of the practice is getting progressively reduced. Transition to more sustainable alternatives like plantation and horticulture will require infusion of investment. Lack of progress towards document based property right regime can hinder the inflow of investment for such activities, especially in the form of bank credit5.

In areas where individual holdings have emerged, problem in use of land as collateral for bank loan can yet arise because of absence of documents formally entitling individuals with ownership. Without such a document banks are ill at ease to take land holding rights as collaterals for advancing credit. Though the process of issue of certificates conferring land ownership of land to individuals have started and has been more or less present in the urban areas, the restrictions on transfer of such land reduces the value of land as a mortgage. While this issue needs to be addressed, we do not intend to suggest removal of all restrictions of transfer of land especially away to non-tribals. The reforms in this area must contain adequate protection for non-alienation of tribal land till the time such restrictions remain relevant and necessary.

The Way to Move Forward :

It appears that the issue of land holding rights in hill areas of the North East has been allowed to drift on its own course. Absence of systematic progress in this area has had several adverse consequences besides acting as a stumbling block for extending bank credit. While old order of community ownership is on the wane, absence of institutional reforms hastening establishment of a formal property right regime has resulted in growing intra-tribal inequality in land holding and emergence of landlessness. Thus land reforms, cadastral survey and land settlement are imperative not only for addressing the issue of collateral for banks but also to facilitate speedy and equitable transition of shifting cultivation based tribal economies to modernised market based ones. However such a reform process can not be expected to be forthcoming in a short span of time. Hence it is also necessary to explore other ways of addressing the problem of collateral.

One obvious way out seems to be the use of the social capital in the form of community bonding within tribes as alternative collateral. It is observed that such bonding has remained strong within tribal communities even when communal ownership of land has been giving way to individual ownership. In view of that possibility of a community guarantee (in line with group guarantee in case of SHG based micro-credit) in lieu of land as collateral for bank finance naturally comes up6. However in this context an observation made by some researchers is significant. According to them though the community bonds are often robust and the customary law usually holds in matters related to tradition, the communal control does not necessary extends to the non-traditional sphere. Thus a community guarantee to back individual credit may not be forthcoming let alone be effective.

This however does not mean that the social capital is useless for the purpose. Though the existing traditional institutions may not be cut out for non-traditional activities such as guaranteeing bank loans, taking the nucleus from the existing traditional institutions, new institutions can be engineered which are customised to support development oriented activities. The village development boards (VDB)7 of Nagaland are shining examples of such institutions, which derive their strength and acceptance from synergy with traditional tribal institutions “ in contrast with the Districts Councils of Meghalaya which have been constructed independently of the traditional institutions with which they often have frictional relationship. At the grassroots level too, voluntary organisations have been active in organising and moulding groups and community based organisations to utilise the existing social capital in tribal societies for new development oriented activities.

Financial institutions can also contribute to soften the situation by adopting a flexible rather than conservative approach. The provision for discretion in advancing loans up to Rs 50,000/- for agriculture and Rs. 5 lakhs for agri-clinic and agri-business without margin/security requirement has already been created8. If such provisions are utilised, most of the credit needs for supporting production activities in rural economy of the North East can be met. Once banks gather confidence from their experience with such lending activities, the concession can be extended to other sectors such as small scale industry and/or the waiver limits can be raised for the region in view of the constraint arising from the existing state of land tenure system.

For urban areas in Mizoram, SBI is accepting documents showing ownership of land holing by individuals as collateral9, though such ownership is not freely transferable. This has perhaps been possible as the process of issue of land ownership certificates in the state has made better progress than in most other hill areas of the region – a fact that reiterates the necessity of cadastral survey and land settlement as the ultimate solution to the problem.

To enable members of hill tribal communities of the region to avail housing loans, SBI has also come up with the Tribal Plus schemes10 under which loans up to Rs. 5 lakhs are given without land collateral. However, the facility is available only to permanent employees of the central or the state government or public sector undertakings or reputed private sector units.

Nonetheless some initiative have been made so as increase flow of credit in spite of lack of adequate movement in the form of establishment of transferable property rights on land in the hill areas of the region. If such initiatives are found to be successful, their wider replication can ease the collateral related constraint on credit delivery to a large extent.

For larger investment projects such as a hotel, a cement plant or a plantation, much larger credit support will be needed. Given the state of development of the hill economies of the region, such projects can come up only with active support of the state government. A pro-active state government can even come forward with government guarantee to help investors to access credit. The problem of moral hazard with government guarantee is however well known. Default of repayment of government guaranteed loan is not confined to only targeted lending like PMRY loan, but is frequently found in case of industrial term loan too, as many borrowers tend to believe that they can get away without paying up.


     Ø   Agarwal A.K. (1987), Economic Problems and Planning in North-East India, Sterling Publishers Private Limited, New Delhi.

     Ø   Agnihotri, S. K. (1996), ‘Constitutional Development in North-East India since 1947’ in B. Dutta Ray and S. P. Agarwal (ed) Reorgani­sation of North East India since 1947, Concept Publishing Compa­ny, New Delhi

     Ø   Goswami, Atul (2002) (ed) Traditional Self Governing Institutions Among The Hill Tribes Of Nort-East India, Akansha Publishing House, New Delhi

     Ø   Haloi, K. (2004) ‘Village Council – An Experience of Decentralized Planning in Nagaland’, in Behera, M. C. (ed) Globalisation and Development Dilemma: Reflections from North East India, Mittal Publications, New Delhi

     Ø   Jamir, A. and Nongkynrhi, K.(undated) Understanding Land Ownership and Management Systems of the Khasi, Jaintia and Garo Societies of Meghalaya, The missing Link, Society for Environment and Communication, Guwahati 781024

     Ø   Lianzela (2006), ‘Constraints of Banking in Mizoram (A brief highlight)’, Department of Economics, Mizoram University

     Ø   Ray, B. Dutta (1999) ‘Autonomous District Councils and the Strategy for Development in North-East India’ in A. Banerjee and B. Kar edited Economic Planning and Development in the North-Eastern States, Kanishka Publishers, New Delhi

     Ø   Ray, N. C. and Kuri, P. K. (2001) Land Reform in Arunachal Pradesh, Classical Publishing Company, New Delhi

     Ø   Reserve Bank of India (2001) Credit Flow to North East – A Brief Review with Reference to the Special Land Laws in the Region, Report of the Informal Group set up by Reserve Bank of India, Mumbai

     Ø   Sachdeva Gulshan (2000), Economy of the North-East: Policy, Present Conditions and Future Possibilities, Konark Publishers Private Ltd., Delhi

     Ø   Singh, Chandrika (2004), ‘Functioning of the Village Development Boards (VDBs) in Nagaland’, Dialogue Quarterly, Vol. 5 No. 3

     1.   The customary law regarding distribution of land as for any other matter do vary from tribe to tribe. Detailed description of the traditional self governing institutions among the hill tribes of North-East India is available in Goswami (2002). Land ownership and management systems among the tribes of Meghalaya are described in detail in Jamir and Nongkynrhi (undated).- a study funded by and undertaken for International Fund for Agricultural Development (IFAD)

     2.   Constitutional developments in the region since independence is narrated in Agnihotri (1996)

     3.   The relation of district councils with traditional institutions in Meghalaya is discussed in Ray (1999)

     4.   Refer Ray and Kuri (2001), Chapter 1

     5.   In Khonsa and Changlang districts of Arunachal Pradesh, community land is in the process of being converted into tea plantations. Details of land transfer for such purposes and collateral backing for credit for such investment are to be ascertained.

     6.   Reserve Bank of India (2001: p 16-23) also notes this possibility

     7.   For nature and functioning of VDBs refer Singh (2004), Haloi (2004)

     8.   Refer RBI circular RBI/2004/217 to Chairman/ Managing Directors of all scheduled commercial banks including RRB and local area banks on the subject Credit Flow to Agriculture – Agricultural Loan– Waiver of Margin/Security Requirements (RPCD. Plan BC No. 87/04.09.01/2003-04)

     9.   As per Lienzela (2006)

   10.   http//www.statebankofindia.com.


Dialogue A quarterly journal of Astha Bharati

Astha Bharati