The new land acquisition bill, which largely ignores the demands of various industry lobbies, exposes the economy to inflationary pressures and subdued investment in the short to medium term.
The bill, known as ?The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013?, will replace the Land Acquisition Act (LAA) of 1894. The existing law has been criticised on several counts, two of which are:
n The land acquisition process under the LAA requires at least 18-24 months on paper. Gaining the required approvals extended the time-frame further.
n Inadequate compensation and loss of livelihood for landowners under the LAA led to a large number of litigation. It provided inadequate compensation, and did not have a resettlement and rehabilitation (R&R) clause. A separate Rehabilitation and Resettlement Bill was introduced in parliament in 2007, but it failed to be passed into law.
Such shortcomings led to delays in implementing several projects in sectors, including mining and industry. The land acquisition process was fraught with difficulties.
According to the World Bank, it takes about 295 days to acquire/lease land public land in India, versus the global average of 140 days; it takes 99 days to acquire private land in India, compared with the global average of 61 days. The percentage of total projects delayed on account of land acquisition-related issues surged to 11.3% as of March 2013 from 3.5% in the period until 2007.
The new bill aims to address these issues. It incorporates the R&R bill and offers much higher compensation to landowners and to people who are displaced or otherwise affected by the land acquisition process.
Key Points
Higher compensation for landowners and affected families: The bill significantly increases compensation for landowners, based on their rural/urban status. Owners in rural areas will be paid four times the existing land price, while those in urban areas will receive double. The bill also requires compensation for affected families (those who depend on the land for their livelihood).
Higher compensation should create a greater incentive to sell land. However, the cost increase could be prohibitive for industries and will add to inflationary pressures. In addition to bearing the high cost of land acquisition, industry will have to pay for rehabilitation & resettlement. Identifying affected people may also be a difficult task for the acquirers given poor land records.
If industry perceives the cost of land acquisition as too high, transactions will be deterred, preventing landowners from benefitting from the policy. Where transactions do take place, land prices in adjoining areas will also rise rapidly, raising the risk of asset price bubbles and possibly boosting consumption on
the perceived wealth effect without any real improvement in income.
A more time-consuming process: Given several new clauses in the new bill, the time required to acquire land on paper will now be from 48-60 months.
Greater consent required: While the old bill gave landowners the right to object to an acquisition process, it did not contain a specific provision requiring consent from landowners. The new bill provides that consent from 80% of the displaced people is required to acquire land for private projects, while 70% must consent for public partnership project acquisitions.
Given the fragmented nature of land ownership and poor land records in India, it will likely be difficult for potential acquirers to build such a wide consensus. Even if they do, the process will be more time-consuming than it is now.
Social Impact Assessment (SIA) is now mandatory: The new bill makes SIA mandatory for all land acquisitions. This process must be followed by a government survey and is likely to increase bureaucratic delays.
Retrospective implementation clause: The new bill and all of its provisions are applicable to all projects for which land has not been allocated. This may delay planned projects, as they will have to redo feasibility studies.
States to have more discretion: The changes in the LARR (Land Acquisition, Rehabilitation and Resettlement Bill) will have to be incorporated into state-level legislation. States will have discretion over the following: (1) rural/urban classification; (2) the extent of compensation above the stated amount; (3) the threshold for the R&R clause to be applied to private projects; and (4) the amount of multi-cropped, irrigated agricultural land that can be used for industrial purposes. This means industries will have to deal with multiple levels of laws and regulations. Also, if a project operates in two states, the owner will have to navigate two different sets of regulations.
The new land bill sure offers better selling incentives and protection to landowners and those who depend on the land for their livelihood. But is likely to make the land acquisition process more time-consuming and expensive.
(Excerpted from Standard Chartered Economic Alert,
August 30)
