Recently, Karnataka chief minister BS Yeddyurappa said consent by farmers will be essential for the revival of a R30,000-crore steel plant project in Gadag district of the state. The statement is a big comedown from the flat no to the Posco project the state government had issued on Wednesday. Such gyrations tell you why land issues are more complex than the plain vanilla agriculture versus industry rhetoric in which they are often couched.
To understand why some industrial projects get into trouble while others don?t, FE reporters checked out a list of companies across India, which have planned a project involving land acquisition in the last five years.
The accompanying table is instructive. Of the 30-odd projects we checked out, it offers a sample of some of the most well-known ones. Without any exception, projects in South India have compensated land owners far better than in Eastern India. This itself is a pretty clear reason why the agitations over land have been more focused in Eastern India. Also, this may be why agitations against land acquisition in the rest of the country (like at Bhatta-Parsaul) have revolved more around the jockeying for a higher price than around the sale itself. But since data from the real estate sector is scratchy, the chart has not included any standalone real estate project.
So, why have some farmers petitioned the Karnataka chief minister, asking that the government reconsider its decision in the latest flashpoint area?the district of Gadag? In this state, industrial developers?including public sector NTPC?have offered farmers far better deals than the ones in the East. Of the four projects from Karnataka that we have examined, all have offered compensation far more than the circle rates. This has acted as a big incentive to the farmers to make the switch to a pro-sale position.
From the data, it is also obvious that the cost of buying land is puny compared to the cost of the total project. This means that compared to the compensation given out for the two factors of production, capital and labour, land costs peanuts. The cost of land for the Jindal 6-million tonne steel plant at Angul, Orissa, is expected to be R89 crore against a total project cost of R25,000 crore?not even 0.5%!
The percentages are similar for the other projects, too. The NTPC Kudagi thermal power plant in Karnataka has a total land cost less than R134 crore for a R20,000 crore investment. That is 0.67%.
NTPC is in the public sector and JSW a private sector company.
But there is a substantial difference in the circle rates in Angul and Kudagi, with the former being on the (much) higher side. As the chart shows, the rate of compensation paid by NTPC at the Kudagi site is at least R5.25 lakh per acre, compared to a maximum circle rate of R48,000 per acre. As a result, there are major differences in the gross contentment ratio of the farmers.
Consider that Tata Steel has been stymied by the Naxals in Chhattisgarh for several years now. The company needs to acquire 5,050 acres to build its steel plant project. Even then, the compensation rate it has offered at a maximum of R2 lakh per acre is just double the circle rate of R1 lakh that is the guidance value for the region. The cost of land compensation offered by the company works out to 0.52% of the current estimated project cost of R19,500 crore. The two information sets are a ready reckoner of which way compensation for land acquired for industry should head. Up north.
There is, of course, a caveat here as industrial groups are sometimes fairly reluctant to share information on the real cost of acquisitions. But, as the list shows, in no place has the cost of buying land been less than the circle value of land.
The chart also shows that in states, except Tamil Nadu, where the state government has set an excessive circle rate, it has ratcheted up the ante against land acquisition. In Jharkhand, for instance, land acquisition for Jindal Steel?s 5-million tonne project at Dorkasai in East Singhbhum district has come to a stop after August 2010, when the state government raised the valuation of land from around R1.2 lakh per acre to R23 lakh per acre in one go.
Similarly, the rates set were ab initio fairly high in states like West Bengal and Orissa. Even after discounting hot spots like Singur, these rates have become a ceiling for industrial groups in these states to pay for land. But both in Karnataka and Tamil Nadu, the actual compensation paid has exceeded the circle rate by handsome margins. In this context, therefore, the dependence on circle rates shown by the National Advisory Council is possibly ill-advised.
Instead, the North-South divide visible in the rates is in line with the pace of economic development in the two regions. The low bar set by the circle rates has not stopped companies from offering generous compensation rates in the Southern states. Correspondingly, the high rates in the East have become one more irritant for the development of industry in the region. The bottom line for industry to get on with it is therefore, as usual, good governance. Playing around with circle rates does little good.
(With inputs from Jayshanker Jayramiah & Arindam Sinha)