The lay of the land

INFRATALK

The solution lies in a new generation of ‘land bank corporations’ in the public domain.

Of the three traditional factors of production — land, labour and capital — there has been no other time in India’s economic history, when ‘land’ has become such an emotive issue as well as a political hot potato.

Industrial development, economic activity and job creation are indisputably sovereign functions for which the role of the private sector is crucial; and land is the first critical step. The state cannot be allowed to walk away from its sovereign responsibility of making land available, not just for itself, but for the private sector as well. Unfortunately, that is precisely what the state intends to do.

In a clear case of throwing the baby out with the bathwater, The Land Acquisition (Amendment) Bill, 2007 seeks to allow the state to walk away from making land available to the private sector. This bill is up for enactment in Parliament, either in this session, or in the coming sessions. The bill effectively bars acquisitions for companies for normal industrial and economic activities. It does so with an interesting sleight of hand. The bill redefines ‘public purpose’ as land required for defence purposes, infrastructure projects, or any project ‘useful to the general public’ where 70 per cent of the land has already been purchased. The bill thereafter bars acquisition for companies except under the 70 per cent condition.

Shorn of the legalese and jargon — what does this actually mean? Assume you are the promoter of a 5,000 acre chemical complex, or a 1,000 acre car factory or a 300 acre textile factory. You cannot now ask any state government for help in acquiring your land. You must acquire 100 per cent yourself. You will not even be assisted with the balance 30 per cent after you have acquired the first 70 per cent as your project is not ‘public purpose’, or ‘useful to the general public’.

A parliamentary panel that submitted its recommendations on October 21, 2008 has rejected this 70-30 principle. It is understood, however, that the UPA government is likely to stick to it.

If this bill is allowed to go through in its present form, then the private sector is required to:

 

Acquire great competencies in-house for piecing together the numerous pieces of an archaic land-records jigsaw puzzle along with the patience to negotiate with up to 10, 000 land-owners of handkerchief-sized plots; take care of local goons; ameliorate local political bosses, handle vast amount of ‘cash-transactions’ and then wade through the legalese for assembly of all these land pieces into one industrial plot; or

 

Throw up a new entrepreneurial class of land-grab entrepreneurs who, on the strength of their having the above-mentioned skills, will quietly and skillfully acquire and consolidate large tracts of land, ensure their ultimate conversion for industrial purposes and sell them to prospective industrial buyers for a hefty profit. No prizes here for guessing their linkages with local mafia and petty politicos.

Are these skills then to become the private sectors core-competence drivers?

This bill also includes some other aspects which corporate India needs to mull over. These are:

The bill establishes the Land Acquisition Compensation Disputes Settlement Authority at the state and central levels to adjudicate disputes resulting from land acquisition proceedings.

 

The bill bars the jurisdiction of civil courts on all matters related to land acquisition. It is unclear whether there is a mechanism by which a person may challenge the qualification of a project as ‘public purpose’.

 

When acquired land is resold, the original acquirer is to distribute 80 per cent of the capital gains to the original owners or their heirs. This implies that every acquirer must track the original owners and their heirs in perpetuity. Also, the resale price of land may be difficult to compute when it is part of a larger deal in which a company is taken over.

This Land Acquisition (Amendment) Bill, 2007 comes hand-in hand with a ‘sister’ bill called The Rehabilitation and Resettlement Bill, 2007. This is also up for enactment in the forthcoming session of Parliament. This bill provides for benefits and compensation to people displaced by land acquisition purchases or any other involuntary displacement. The bill creates project-specific, state and national authorities to formulate, implement, and monitor the rehabilitation and resettlement process. This bill establishes the post of Ombudsman to address any grievances from the rehabilitation and resettlement process. Civil courts are barred from entertaining any suits related to this matter.

Are there any alternative ways of handling this?

Yes, it appears that a key intervention would be to wake-up and reshape the moribund ‘State Industrial Development Corporations’. The SIDCs were created at a time and place in history to nurture ground-level entrepreneurship, provide access to capital, develop industrial plots and serve as refinancing receptacles for national level Development Finance Institutions like IDBI, IFCI and ICICI in the old days. These SIDCs have ceased to be relevant in the present context. They or their equivalents should be reshaped to become energetic, visionary State Land Bank Corporations (SLBCs).

These SLBCs should use modern satellite imagery for identifying waste or fallow land. They should be empowered under the clause of ‘public purpose’ to acquire large tracts of unused,unusable or waste land to carve-out large-sized Domestic Economic Zones (DEZs) where plots could be made available to future generation of entrepreneurs and investors. And their land acquisition methods should be above-board, humane and genuinely in public interest. They should be sufficiently capitalised by state governments to achieve their objectives, and have the power to leverage more finance on the strength of their land-bank inventories. Importantly, these Land Bank Corporations could themselves play the role of overseeing Resettlement and Rehabilitation obligations as envisioned in the proposed enactment.

And this is possible. In January 2004, the State of Michigan enacted the Land Bank Fast Track Act to create a Land Bank Fast Track Authority to acquire, assemble, and dispose land for “valid public purpose”, and to assist governmental entities in the assembly and clearance of title to property. The Land Bank of the Philippines in its vision statement states that ‘it shall be the dominant financial institution in countryside development committed to improving the lives of all its stakeholders and working with them to lead the country to economic prosperity’.

In the Indian context, a new generation of central and state-level Land Bank Corporations should be created. Existing central institutions like the National Housing Bank or Hudco or Nabard could possibly be reshaped to fulfill this mandate to provide vision and refinance to SLDCs much like the model of IDBI and the state IDCs.

It is an idea whose time has come.

The author is the chairman of Feedback Ventures. He is also the chairman of CII’s National Council on Infrastructure. The views expressed here are personal