Why India Inc is not happy with the new Land Bill

CEOs feel increased project cycles, compensation and litigation fears make any large infra projects unviable

Ajit Gulabchand, Chairman of infrastructure firm, HCC, is a worried man. After a lengthy court battle with the environment ministry which almost grounded HCC’s signature project in Lavasa city near Pune, Gulabchand says he will not start any new projects for the next two to three years.

The reason: The land Acquisition Bill passed by the Parliament last month will either make projects unviable or expensive for large infrastructure or real estate projects like Lavasa. And if any braveheart CEO does start land acquisition for a new project, says Gulabchand, he will be facing litigation at almost every step.

“It would be interesting to see how many projects manage to acquire land after this bill,” he says.  

Gulabchand is not alone. Almost every CEO -- planning a big infrastructure project to set up airports or steel which require large tracks of land - is saying the bill is not conducive for investments.  

And here are the reasons: As per the new bill, a new layer of approval by way of social impact assessment has to be undertaken. This will increase project life cycle at least by one year. And at every stage, it can be challenged at the court.

The provision of rehabilitation and resettlement (R&R) is now necessary for all affected families. The new law says that R&R will have to be completed before buying the land which will also add to project costs. Unlike the previous 1884 land bill, the new bill provides a house for every family displaced on the lines of Indira Awas Yojna or a minimum 50 square feet house in the urban areas.

If the family chooses not to accept the house, it would get a one-time financial grant or one-time grant of Rs 5 lakh per family. The land owner will also have the option to get annual payment of  Rs 2,000 a month for 20 years, to be adjusted for inflation. Further, an affected family also gets a monthly subsistence allowance equivalent to Rs 3,000 a month for one year from the date of award.

The new bill says consent of 80% of displaced people is required in case of acquisition by a private company and 70% of land owners consent in case of public-private partnerships. The new bill says land acquisition would lapse if no payments are made within 5 years.

In an earlier interview, L&T Chairman AM Naik had warned that the project cost of new airports near Mumbai will go up by Rs 4,500 crore in land cost alone.

“This will just lead to uncertainty on the ground as for every track of land 10% to 15% of land owners are untraceable. It will be difficult for a company to get consent from 80% of the people and project costs will go up” says CEO of a Birla group company asking not to be quoted.

Land costs make around 5% to 10% of total cost for large projects like steel and power but for airports, roads and townships, the land costs make up for upto 50% of project cost.

The new bill also says that if the land is not utilized for the stated purpose in five years, it will have to be returned to the government. This provision again is negative for infrastructure projects like Navi Mumbai airport project, which still needs to acquire another 600 acres from local landowners.

And finally, CEOs say the compensation amount of four times the land value in the rural area and two times of land value in urban area will increase the cost of projects two to three times.

The new bill says where the award has been made but acquisition has not been completed, compensation will now be paid according to the provisions of the new Bill. Also, where acquisition of land has not taken place for 10 years, the process for acquisition will need to be initiated afresh under the new bill or land has to be returned to the original holder or to the state government.

The ‘retrospective clause’ in the bill would disrupt the land acquisition process underway in various infrastructure and industrial projects.

“This bill will start new problems than solving old ones. The bill will just lead to litigation and project delays,” rues Gulabchand.

Why the new Land Bill fails to work:

• Higher compensation at the rate of 4 times market value for rural and 2 times for urban land
• Comprehensive Rehabilitation & resettlement (R&R) package for development of more than 50 acres (urban) and 100 acres in rural areas
• Retrospective implementation - New law to be applicable in all pending cases of land acquisition under old law
• Land unused for 10 years to be returned to the land owner or State govt
• State govt can better the compensation but not lower it
• 20% of the developed land would be reserved and offered to the farmers

The second part of this two-part series will appear tomorrow: What changes India Inc wants in new bill?