New land act will impact growth
Dec 12, 2013
Source : The Times of India


DELHI: Land reform has been a neglected social agenda in India for decades, and sidelining this very important subject has come at an economic cost, particularly in recent times.

So, when India’s industrial output dipped to barely over 1% in the last fiscal year, not to mention the overall global environment and the looming general elections at home, the need to boost domestic growth was clearly felt. Since land acquisition laws were seen as a major roadblock to growth, the government decided to pass a new land acquisition law, which it hopes will act as a silver bullet.

This reflects the determination on the government’s part to finally introduce more clarity and fairness in land acquisition, especially for the private sector. However, while the overall thought is positive, it is unclear the extent to which the bill will succeed in creating its intended impact.

More questions than answers

The Land Acquisition Bill replaced an antediluvian British law and thus, was expected to reflect modern realities more accurately. However, it seems to have raised more questions than provided answers.

For one, the bill talks about land parcels that are rather large (50 plus acres in urban areas and 100 plus acres in rural areas). In urban areas, including towns and cities, such parcels are rarely seen. While such large tracts may be available on the periphery of towns and cities, even in these areas, ownership of land is largely in the hands of private parties and not farmers. Therefore, the bill will not really make a difference to land acquisition for urban real estate or industrial purposes.

So who will be affected? The companies in the infrastructure and manufacturing sectors-two ‘bulwark sectors’ that are known to require large tracts of land in the exteriors of cities and towns, will have a tougher time acquiring land. This is because of two key reasons-the mandatory consent provision and the incremental duration and cost burden that will hit private projects where it hurts them most, that is in terms of financial viability.

Mandatory consent, time and cost challenges

Under the mandatory consent clause, the land acquirer must perform a social impact assessment (SIA) of the land sought for acquisition. The results of this SIA have to be submitted to an expert panel for approval. Once the displaced and affected families are identified, the acquiring firm or agency must get consent from 80% of the families for a private project and 70% for a PPP (public-private partnership) project.

In a country where land ownership is often fuzzy, owing to lack of proper documentation, this creates an initial stumbling block for companies seeking to identify genuine stakeholders whose consent is required. Even if that were done, there are two contentious clauses relating to compensation and rehabilitation and resettlement (R&R). Payment for the land (ranging from two-four times its market value) and the R&R amount (which includes a monthly subsistence allowance for one year, along with a one-time payment of Rs 5 lakh or a job or monthly payment for 20 years, and house or land, as the case may be), has to be given upfront, thus increasing the overall cost of doing business.

The industry fears that getting actual ownership of the land could take at least four to five years, which in turn, increases their time-to-market and also compounds the interest cost burden. Companies are also worried about the fact that the bill will apply retrospectively to cases where land hasn’t been awarded yet. All of these factors clearly hint at an increase in project gestation periods, which, even in normal circumstances, was already on the higher side.

The likely upshot of this bill will be increased caution on part of the manufacturers and infrastructure firms while buying larger plots of land, unless they are already in private or government hands. Those who still venture out will have no option but to transfer the increased cost of doing business to the end user.

Even PPP projects, which the government frequently undertakes in the highways or energy sectors, could run up against stiff challenges because of the large acreage required. Ultimately, newer land usage and development models will emerge in order to save time and costs associated with land acquisition. While the farmers’ interests should assume top priority, any policy change needs to complement growth, without impacting the growth of other segments. The pursuit of enduring economic growth necessitates finding a middle path between conflicting social and economic objectives.

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