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  1. Land Act getting painful: ICRA estimates land costs up to 37% of total in some areas

Land Act getting painful: ICRA estimates land costs up to 37% of total in some areas

ICRA points out, the Land Acquisition, Rehabilitation and Resettlement (LARR) Act of 2013 is really beginning to bite since the levels of compensation have gone up dramatically

By: | Published: December 29, 2017 4:19 AM
Land Act, ICRA, land cost,  ICRA points out, the Land Acquisition, Rehabilitation and Resettlement (LARR) Act of 2013 is really beginning to bite since the levels of compensation have gone up dramatically

Even under normal circumstances, the government’s ability to construct the ambitious 83,000-km Bharatmala project was going to be a major challenge. While the number of road construction contracts awarded fell by a massive 50% during April to November this year as compared to the same period in 2016—to 2,927 km from 5,820 km—the speed of actual construction rose by 23%, to 4,942 km from 4,017 km over the two periods. While the lower ratio of awarded contracts will result in a slowing in road construction over a period of time, even if just the higher completed contracts are taken into account, this means the government—through various arms including the National Highways Authority of India—has managed to complete around 21 km of roads every day. This is a big improvement over the UPA years, but keep in mind the Bharatmala project means more than doubling this speed. It works out to 45 km a day if the project is completed over a period of five years and around 57 km if the project is to be completed, as announced, by FY2022, since half of FY18 was over by the time the project was announced.

While the 45-km target is clearly aspirational, and so a certain slippage is to be expected, as ratings agency ICRA points out, the Land Acquisition, Rehabilitation and Resettlement (LARR) Act of 2013 is really beginning to bite since, under it, the levels of compensation have gone up dramatically—to four times the market value in rural areas and twice the market value in urban areas. As a result, ICRA estimates acquisition costs have risen to upwards of `2.5 crore per hectare as compared to `0.9 crore per hectare in 2014. As a proportion of the total project costs, land acquisition costs were around 9% in 2009 and this rose to 16% by 2012; for some projects, the ratings agency estimates the land value has shot up to a range of 37-55%. Also, since around 75,000 hectares of land will be required for the Bharatmala project, acquiring this is going to be a very tough job. With land costs rising by so much, the overall project costs will be overrun and this, in turn, will put pressure on the government’s ability to fund these projects. An added problem is that, with private sector investments drying up over the past few years, the government has tried to woo them back with the hybrid annuity model—while banks have got over their reluctance to fund such projects, there is a considerably smaller private investment that they entail as compared to the past. The huge shortfall in private investments, of course, is something that is plaguing all infrastructure projects, not just roads.

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