 "Should the land acquisition law worry India Inc?")
Is the despondency exaggerated? Many reports have talked about long delays in the completion of projects, owing to the current land acquisition process. A 2012 report by the Federation of Indian Chambers of Commerce and Industry and EY on the country's infrastructure had said, "Land acquisition is the single largest roadblock for infrastructure development because of multiple reasons. Inadequate compensation and poorly planned rehabilitation packages have led to this issue." The same year, a report by the Associated Chambers of Commerce and Industry of India and PricewaterhouseCoopers on the road sector, after studying 25 highway projects scheduled to be completed in November 2011, said the average delay for these 22 months. The primary reason: the protracted land acquisition process.
A 2009 McKinsey report detected "early signs of implementation challenges" in the execution of infrastructure projects. It estimated, "If the current trends continue over the 11th and 12th Plan periods (2008 to 2017), McKinsey estimates suggest India could suffer a GDP (gross domestic product) loss of $200 billion (about 10 per cent of GDP) in financial year 2017." It, too, concluded delay in land acquisition was one of the major bottlenecks and cited a ministry of planning study that said 70 per cent of road projects were delayed because of land acquisition.
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The main issue raised by the three leading consultancy firms was the same: delay in acquiring land was the real culprit, not the cost of acquiring it. Does the new legislation address this concern? The initial reaction has been one of disappointment. But a careful study of the Bill indicates endless delay in acquiring land for important projects is unlikely.
Here is how it can be avoided. The two time-consuming steps in the new legislation are a social impact assessment study and its vetting by an expert panel and the rehabilitation and resettlement (R&R) process. "The social impact assessment study has to be completed in six months. Another two months would be taken by the expert group. The two reports will then be examined by the Collector, who will also work out the compensation package for each affected family. That may not take more than six-nine months. It means from the date of notification to the actual acquisition of land, it wouldn't take more than 18 months," says an expert who has studied the impact of many land acquisitions. He, however, adds objections to the R&R process may result in some litigation, but that wouldn't stop the authority concerned from acquiring land. He also dismisses apprehension that seeking the consent of affected families would take a long time.
But what about the cost of acquisition? "With the passage of the Bill, the expectation of the landowner will rise. That will push the price of land higher," says Binaifer Jehani, director of CRISIL Research. However, rating agency CRISIL has a different perspective. It says with the new land acquisition law, "overall project costs would increase three-five per cent".
Farmer leaders, too, feel the impact of the new law would only be marginal. "In most cases, circle rates, which would become benchmark in most cases, are just a third of the actual market price. Even if you multiply it by two or four, the price a farmer gets would be on a par or slightly more than the market price. Moreover, paying four times in rural areas is a myth. Most of the land acquired is close to urban areas, and this would fetch a price in the multiple of two," says a farmer leader.
"In principle, the Bill's provisions are a floor on the compensation. State governments are free to pay more than two-four times the market price the Bill makes mandatory. In practice, I doubt any state would want to pay more than the generous (some may say excessive) compensation it is introducing," says Parikshit Ghosh of the Delhi School of Economics.
However, Dilip Mookherjee of Boston University says, "Setting the compensation amount at four times the market price is not just draconian, arbitrary and heavy-handed; it also avoids the question of how the market price would be assessed based on land records which, in turn, are based on British-era surveys."
However, what would hit the industry hard is the retrospective clause on R&R. The Bill says the R&R clause would kick in if the land has been acquired, but not taken possession of, in the last five years. Jehani says, "The retrospective clause will adversely impact ongoing projects." Incidentally, the Rajya Sabha has exempted ongoing irrigation projects from the retrospective R&R clause. Now, this has to be ratified in the Lok Sabha.
Social activists say while the legislation is an improvement on existing laws, it falls short of expectations. "The new legislation is a step forward and two steps back. While making R&R part of the land acquisition is a step in the right direction, many things are yet to be done," says Madhuresh Kumar of the National Alliance of People's Movements. He says the government shouldn't acquire land for private companies, adding the Bill should have addressed the concerns of those displaced because of projects undertaken 40-50 years ago.
If private companies acquire land directly from farmers, they may not have to go for the compulsory R&R. The earlier draft had specified if private company acquired land of more than 100 acres in rural areas and 50 acres in urban areas, it would have to go for R&R. Now, this has been left to state governments to decide. Experts say this would encourage companies to opt for land acquisition directly, rather than wait for government to do so on their behalf.
The Bill specifies if the government acquires land for its own projects or projects undertaken by public sector undertakings, it wouldn't have to take the consent of farmers. However, as far as possible, irrigated and multi-crop land wouldn't be acquired. Linear projects such as roads and railways, too, would be exempted from this clause. But even for land acquired for government projects, social impact assessment studies and R&R would be required, except when the urgency clause is invoked (only in case of defence projects and natural calamities).
Experts say the new legislation has left a lot to state governments. For instance, states would have the power to veto the findings of social assessment impact studies. These could also decide the type of land to be acquired for various projects and exempt private projects from the R&R clause if these so wish. Given the competition among states to attract investors, this might not be bad news for the industry.