The Land Acquisition Act of 1894 (LAA) has often been portrayed as a draconian, anti-people legislation. In response to recent high-profile land-related snafus, the Ministry of Rural Development has sponsored a Land Acquisition, Rehabilitation & Resettlement Bill 2011 (LARR) that has received cabinet approval. The Draft Bill is now before a Standing Committee of Parliament and Jairam Ramesh is trying hard to get it passed in the winter session of Parliament.
The Bill touches many stakeholders, and, thus, the debate and discussions have been vigorous and emotive. These have been assiduously examined and documented by my colleague Mukesh Khandelwal.
Industry, as a key stakeholder, has four chief concerns:
Concern 1: Centre-versus-state issue
- Industry is unclear what passing a central Act would actually mean. The questions bothering it are:
- Does the Centre have the jurisdiction to pass this Act considering that “land” is a state subject?
- Are states obliged to follow the guiding principles of the central Act?
- What happens if states decide to either do nothing or seek to be more populist than the Centre?
Eminent lawyer and constitutional expert, Abhishek Manu Singhvi, when queried on this matter had this to say: “Even the existing over-115 year old Land Acquisition central Act (LAA) has innumerable state-specific amendments to each section. Any new Act would continue that same paradigm, doing nothing new.
Our Constitution permits both Parliament and state legislatures to legislate if the subject is in the Concurrent List. Entry 42 therein deals specifically with land acquisition and requisition. Such specific mention relates LAA to this entry and not to other entries qua land in the state list.
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The effect of entry 42 read with article 254 is simply that parliamentary legislation prevails over contrary state legislation on the same subject, whether the former precedes or follows the latter in point of time, provided such state legislation is repugnant to Parliamentary law.
Only courts can decide, that too ex post facto, whether state law is repugnant. Mere difference in the two does not necessarily so imply; in law, the two should be unable to coexist and be antithetical. Additional or supplemental provisions in the state law, incidental and non substantial trenching on central law, operation on an additional or cumulative basis or in different fields, is not repugnancy. Moreover, any state is specifically empowered to pass law in the concurrent list, even if repugnant to parliamentary legislation, if such state secures Presidential assent for such law.
Such is the wide play in the joints as far as state discretion within the concurrent list is concerned; something which our framers designed as a necessary concomitant of even our relatively mild quasi federal structure.”
It is, thus, reasonably clear that state legislation on land acquisition will broadly have to align itself with the central legislation, through divergences and skirmishes cannot be wished away.
Concern 2: The cost of land increases five-fold
The impact on the cost of land is significant. A simple analysis based on the prominent Singur land acquisition case indicates that the cost of acquiring land under LARR would have increased by at least 4.6 times relative to acquisition under the old LAA. This also translates to the cost rising from eight per cent to 29 per cent of the total project cost.
| TABLE 1: COMPARISON BETWEEN THE LAND ACQUISITION ACT OF 1984 AND LARR BILL 2011 Land acquisition cost estimates for Singur project | |||
| LA Act (1894) | LARR (2011) | Unit | |
| Project capex (excluding land cost) | 1,800 | 1,800 | Rs Crore |
| Land requirement | 997 | 997 | Acres |
| Prevailing market rate for land | 11.5 | 11.5 | Rs Lakh per acre |
| Multiplier for land acquisition | Nil | ||
2 times
Without taking a position on whether the cost of acquisition under LARR is excessive or whether it only addresses historical “unfairness”, there are several implications for industrialisation. Small and medium scale units will need to find far more start-up capital as well as recalibrate the viabilities for their projects. Large industrial units (requiring more than 100 acres) will mandatorily be required to undertake resettlement and rehabilitation (R&R) activities according to LARR, and will see land moving up from a historical five to eight per cent of project cost to maybe as high as 25 per cent to 30 per cent. Large infrastructure and public utility projects and urban expansions will be impacted through higher cost of acquisition and R&R. Passing on the increased cost to consumers will have an inflationary impact.
Concern 3: Land becomes a ‘compromised’ asset
From various angles – accounting, financing, mergers and amalgamations – the LARR does not allow land to be a clean, uncomplicated asset on the balance sheet, even after the acquisition process is completed. R&R liabilities may stretch for over a decade. Portion of profits may have to be shared. There is no certainty on the true balance sheet value of the land. Land cannot be used for any purpose other than for which it has been acquired, with no allowances for change in use for changing business needs over time. Land cannot be transferred without government permission. This specially has implications on events such as mergers, amalgamations and acquisitions. These together impact the value of land as security, and may make financing difficult. The reversion of land to the government in case part or all of it is not developed in 10 years means that large format projects, which have a development cycle exceeding 10 years, (such as greenfield urban development and education), will be set up without provision for expansion.
Concern 4: The development agenda is not in focus
An admirable job has been done vis-à-vis upholding the economic interest of families affected by land acquisition. It is imperative that this position be counterbalanced in the government by forces that root for planned development also. State-wide stock-taking of land banks, digitisation of land records, land-use planning and resultant zoning of lands for industrial, urban and infrastructure use must be made compulsory. A “merit order” for land needs to be institutionalised as shown in the Figure 1 (Merit order for land use by industry).
Enhanced FAR in cities to enable urban development to go vertical, along with redevelopment of inner city areas needs working on. Most importantly, we need to create State Land Bank Corporations that take on the responsibility for ex-ante land agglomeration and related external infra linkages.
Who is to take charge of this development agenda?
The author is the Chairman of Feedback Infrastructure. These views are personal. vinayak.chatterjee@feedbackinfra.com