Asking companies to pay a compensation which is four times the average land price of last three years could lead to costs getting compounded, in turn, making it inflationary from both the cost push and demand pull sides
The government’s decision to let the states do their own thing with regard to land acquisition, in the event it is not able to forge a consensus and get the Bill passed, seems like a pragmatic one —don’t allow the Opposition to put you in a corner to a point where you’re not able to get other reforms through. By agreeing to consider states’ request they be allowed to come up with their own rules, the government certainly comes across as more conciliatory than when the debates first kicked off in Parliament; at the time the Prime Minister appeared inflexible insisting the removal of the consent clause and the SIA, for a certain set of sectors, was the way to go. Now states will have the freedom to decide whether to retain or do away with the consent clause.
To be sure, this stance softened somewhat with several senior party leaders reaching out to Opposition parties to try and persuade them to go along with the changes proposed but that clearly hasn’t worked. That the Prime Minister observed on Wednesday, at the Niti Aayog meeting, it was appropriate that suggestions of states be listened to once again, ahead of the upcoming Parliament session is a sign the government wants to be able to do more business in the monsoon session of Parliament than it managed to in the Budget session.
While that may be so, it would be a pity if foreign strategic investors, looking to set up a manufacturing base in India viewed the development unfavourably or saw it as a sign of the government’s inability to push through tough reform. If not exactly a litmus test, the land Bill, was a yardstick for the government’s success at reforms. To that extent, if the Bill doesn’t get passed, it will remain one of the unticked boxes. MNCs or global corporations, looking to set up shop in India, would prefer a single central law but since land is a concurrent subject, states were always going to be free to pass their own laws even if the Centre did away with the SIA and the consent clause. The situation is much like that in multi-brand retailers where global corporations were reluctant to invest because if governments of contiguous states had differing approaches it would have posed problems. But if the terms are reasonable, investors—local and global— should be willing to check them out since most companies will not have a plant in more than one state.
It would be interesting to see to the extent to states are willing to go in order to woo investors. Asking companies to pay a compensation which is four times the average land price of last three years could lead to costs getting compounded, in turn, making it inflationary from both the cost push and demand pull sides. Land costs, in effect, don’t account for a sizeable share of the total project cost but if land prices trend up—rather than being pro-cyclical—it would start to pinch. While auctioning land with a floor price is a transparent mechanism, the absence of enough bidders—at a time when industry isn’t really looking to invest—might hurt the process. Moreover, getting consent of 70% of those affected and conducting a social impact assessment (SIA) will remain a challenge for companies. Given rising aspirations —the workforce wanting to move from agriculture to more productive areas of industry and services— acquiring land should not be a very difficult task. Had there been enough jobs created that could have been offered to those whose land is to be acquired, the process might have been easier, the reluctance to give up the land, far less. But the issue has been politicised far too much making what was already a difficult task, even more challenging. The states are welcome to try but unless they’re willing to take tough decisions, like the NDA, they’re not likely to succeed in wooing too many investors.