A balancing act

Here’s a look at the positive and negative features of the much-awaited legislation.

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is an Act of Indian Parliament that regulates land acquisition and lays down rules for granting compensation, rehabilitation and resettlement to the affected persons in India. It replaced the Land Acquisition Act, 1894, a nearly 120-year-old law enacted during British rule and has come to effect from 1st January 2014. Its primary aim is to provide fair compensation to those whose land is taken away, bring transparency to the process of acquisition of land for setting up factories, buildings, infrastructural projects and to assure rehabilitation of those affected. In addition, the Act establishes regulations for land acquisition as a part of India’s massive industrialisation drive through the Public-Private Partnership (PPP) route.

Highlights of the New Act

• It provides for land acquisition as well as rehabilitation and resettlement.
• The process of acquisition involves a Social Impact Assessment survey, a preliminary notification stating the intent for acquisition, a declaration of acquisition, and compensation to be given by a certain time. Rehabilitation and resettlement is to be provided to people affected by the acquisition.
• Compensation to the owners of the acquired land shall be four times the market value in rural areas and twice that in urban areas.
• In case of acquisition of land for use by private companies, consent of 80 per cent of all land losers required; in case of Public-Private Partnerships, consent of 70 per cent of land owners required (not all land losers).
• All provisions shall not apply to acquisitions under certain existing Acts.

Has the Act made the process of land acquisition simpler or more complex, and if complex, how are the complexities affecting the infrastructure industry?
The Act, in its present form is to some extent complex and there is a need to amend a few provisions so that it is beneficial for both the seller and the developer.

In a developing economy like India, where infrastructure related projects are of integral importance, increased project costs resulting from the new Act might cause a severe setback for the development of infrastructure and efforts towards urbanisation. Clauses such as the Compensation clause and the Rehabilitation & Resettlement clause would have a direct cost implication whereas the Consent clause could potentially delay the execution of projects.

Another provision which could negatively impact the infrastructure industry is the timeframe for acquisition which is as high as 56 months, by which time projects are likely to undergo huge cost escalation. An acquisition tenure of a minimum of 2 years would prove to be more effective.

Furthermore, the Multiple-Payment principle of the new Act is likely to encourage and reward speculation, which would lead to inflation in land prices. For example, in Punjab land has been previously acquired for Rs 1 crore per acre and the government now has to pay Rs 4 crore per acre for future acquisitions, this would become unaffordable for industry. As a step to curb speculative purchases, in the case of recent purchases half the appreciation on acquisition would go to the original owner. This would still not reverse prices which are currently at stratospheric levels bearing no relationship to the land’s productive value. Land that is rented for Rs 30,000 per acre in Punjab, is being acquired or sold for Rs 50 lakh to Rs 1 crore per acre, resulting in a rental return of a mere 0.6 per cent to 0.3 per cent per annum. That is a measure of the impact of inflated land prices.

India today suffers from a record high Current Account Deficit, reflecting a loss of competitiveness, and the high cost of land acquisition could cause permanent damage to the country’s growth. Therefore, land prices in India should be in sync with competing neighbour countries like Thailand or Indonesia, which have a higher per-capita income than India.

Fortunately, the government has now accepted an Opposition suggestion to make long period of land leases an alternative to outright acquisition. This could salvage the damage, and could become the preferred route as it will enable farmers to lease their land for infrastructural purposes. Compulsory leasing, instead of acquisition, would solve most of these problems. The farmer will get a lump sum upfront, followed by steady rental income in the years to follow. Instead of becoming landless, he will be a landlord, and the infrastructure company that leases his plot will become his tenant. Having reputed companies as tenants will bestow status on a farmer, whereas outright acquisition will reduce his status to that of the landless, thereby making farmers, stakeholders in industrialisation.

Overall the challenge with the recently enforced Land Act is to balance the benefit to farmers with the cost to industry.

Pros of the Land Acquisition Act

1) It ensures fair dealing with farmers. The explicit guidelines on the process of acquiring land and rules for compensation packages will ensure that the process of land acquisition is clear.
2) It brings transparency to the process of acquisition of land to set up factories or buildings, infrastructural projects and assures rehabilitation of those affected.
3) It will benefit both industry and those whose livelihood is dependent on land as the Act provides two times more compensation in urban areas and four times more compensation in rural areas than the circle price.
4) The circle rates are decided by the local government on the basis of average sale price for the last 3 years or last 3 months whichever is higher.
5) It fits well with the government’s "inclusive growth" agenda, also furthered by the Food Security Bill.
6) It will eclipse the eminent domain criteria and introduce voting criteria in which 80 per cent of the people should say ‘yes’ only then land will be acquired.
7) In order to reduce speculative purchases, the new Act proposes that in the case of recent purchases, half the appreciation on acquisition will go to the original owner.

Cons of the Act

The LARR Act has a few negative consequences for industry. First, market prices of land have already been rising. By providing a compensation package that is a multiple of the current market price, the Act can raise the cost of land acquisition significantly, increasing the overall cost of a project. In some cases, this could make the overall project unviable and negatively impact capital expenditure. Second, rising land costs will have an overall inflationary impact on the economy. Third, the Act will elongate the process of land acquisition.

Other Key Concerns

1) Gram Sabha and Basti Sabha don’t have legal right to decide the nature of public purpose. As a result misuse of land may occur.
2) Acquisition for Private and PPP Projects: Land reform activists fear that the State would again play the role of facilitator under the garb of PPP projects.
3) The Act leaves it to the State governments to decide if non-irrigated, rain-fed, single-crop land can be acquired or not. India has 75 per cent of agricultural land as rain fed and most of it is single cropped. Such land is mostly held by Dalits, Adivasis and marginal farmers.
4) Ministry of rural development wants to exclude 13 out of 16 Acts including Industrial Development Act, Land Acquisition (Mines) Act, National Highways Act and others from the purview of the new Act.
5) Role and Consent of Gram and Basti Sabha not required in case of linear projects such as railways, highways, major district roads, power lines, and irrigation canals.
6) Ministry retains the provisions for State land bank. The provision is likely to be misused as large-scale acquisition took place in the past and later the acquired land parcels were illegally transferred to corporations for real estate and other purposes.