There was a need to incorporate economic fundamentals in the legislation on land acquisition as proposed but that was lacking. Self-explanatory Figure A8.1 indicates how the price per unit of land supplied by farmers would be constrained reflective of government policy. It describes the agricultural land market in which government has entered with the objective of acquiring land on behalf of industry – public or private or in combination. S(L) is the supply curve of land which is a summation of distinct supply curves of individual farmers. While each farmer is likely to have a different valuation of his land asset and therefore possess a different price-to-supply relation, overall, the market sums up to S(L). Note that S(L) is upward sloping since more land will be offered in the market as a whole only as the price per unit of land increases.

On the other hand, the industrialist has a demand curve D(L) for land needed for his proposed project which reveals that he will tend to demand more land as its per unit price diminishes. However, he has a maximum per unit price, OF, which he will not venture to offer for the land he requires. It is important to point this out since governments, in particular some state governments, run to offer land at prices above which they tend to believe industry would not be attracted to invest.

If government did not intervene, then equilibrium in the market would occur at C, the demand– supply intersection, at a price of CL and the land exchanged would be OL. The problem is that this amount of land is insufficient for the project, the requirement being larger (OL). At this point, AB emerges as the measurement of mismatched prices, the suppliers wanting a price of AL per unit and the buyer offering only to pay BL per unit reflecting a mismatch in the demand and supply curves, AB at L. So, government intervenes to find ways to acquire OL amount of land, and usually at a per unit price of less than AL.