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Companies should be made integral in acquisition

Companies should be made integral in acquisition

ASSOCHAM President Dilip Modi says states’ several land acquisition policy initiatives to attract industries could be ineffective unless they address specific ground issues, and involve the industries’ participation.

Land acquisition and resettlement and rehabilitation (R&R) of the displaced have become indispensable to project development. Acquiring agriculture and forest land and converting it for industrial and mining purposes has been considered as a step towards achieving higher rate of growth. If it is forest land, clearance from the Ministry of Environment and Forests (MoEF) is required. In other cases, the industry acquires the land from willing land owners.

Acquiring land from unwilling owners (involuntary land acquisition), on the other hand, has become a major policy concern. Involuntary land acquisition, in principle, is governed by Land Acquisition Act (LAA) 1894. The Act, although modified in 1967 and 1984, does not address R&R issues. In view of this, the Government of India announced the National Policy on Resettlement and Rehabilitation for Project-Affected Families (NPRR) in 2003, which came into force in February 2004. Later, in order to make the NPRR more effective and to make LAA consistent with it, two bills, the Land Acquisition (Amendment) Bill, 2007, and the Rehabilitation and Resettlement Bill, 2007, were prepared and have been kept waiting for an approval from the Parliament.

States are competitive

After the economic liberalisation of 1991, investors have the choice of investing in business friendly states. State governments have increasingly been formulating competitive policies and making institutions more business friendly in order to attract private investment. One such step is when the government helps the industrialists in the acquisition of land for the project.
In view of the criticality of the issue, various state governments have made land acquisition strategy as an indispensable element of their investment promotion package. Earmarking industrial zones and creating land banks with government lands, waste, dry and single crop lands is the first step in this direction. Identifying surplus and unused land available with the government and urban local bodies to be placed in the land bank is also spelled out by many states.

Another important element of the states’ land acquisition policies is streamlining the acquisition process to be followed by the industries. Evolving a clear cut land acquisition and R&R policy in consultation with farmers and industry has been envisaged by many states. Simplifying the process relating to conversion of land for non-agriculture uses has also been highlighted by various states. States are also proposing to amend the relevant section of the State Land Reforms Act to facilitate investments in purchase of agricultural land. Policy incentives in the form of exemption of stamp duty, land conversion charges and concessional registration charges to land acquired by investors are the other prominent measures announced by various states.

Failure to address

Nevertheless, a number of shortcomings are being cited time and again in the land acquisition practices followed in India. These include inadequate address of project-induced displacement, failure of implementation of R&R policies, missing trickle down effects of the development, corruption and lack of participation of the project affected in the planning and implementation of the resettlement and rehabilitation packages. It has been widely felt that the solution to these shortcomings lies in minimisation of government acquisition of land for the corporate sector, government playing the role of facilitator, exploring minimum displacement and non displacing alternatives, more consultations with the people likely to be affected, eliminating rent seeking elements from the process and effective redressal of public grievances.

The experience of acquisition

Our experience in land acquisition for industrial purpose will help design a successful model for involuntary land acquisition. Issues associated with acquisition and resettlement: In order to focus on key success factors of land acquisition and resettlement, it is imperative to outline a successful land acquisition experience.

Model land acquisition process: In a typical private investment project, the state government and the investor enters into a formal Memorandum of Agreement (MoA) after discussing the project proposal in detail.

Following the MoA, the investor should immediately initiate a direct bipartite dialogue with key local stakeholders that includes both displaced and affected. The role of the state government is restricted to that of a mere facilitator. The bipartite discussions enable the investor to understand the concerns of the stakeholders and creates a lasting relationship with them.

The key success factors in this regard are identified as:

• Minimising the involvement of middlemen and NGOs
• Apoliticalising industrialisation policies
• Establishing a direct communication channel with the displaced and affected and minimising the use of press and multimedia statements
• Adopting conciliatory stances by both investor and stake holders

In the third stage, the investor completes the paperwork and obtains clearances. At this stage, bureaucratic efficiency and its constructive support are the main success elements.

The project culminates in its last stage—successful project implementation.

The experience of OP Jindal group that acquired land for setting up a steel plant in West Bengal has been referred as an example of a successful land acquisition model. If we go into the details, the OP Jindal Group set up a 10 mt steel plant at Salbouni district of West Bengal with a total estimated cost of Rs. 35,000 crore. For this purpose, the investor, besides directly acquiring 4,300 acres of fallow land from the government, also acquired about 550 acre from 700 marginal farmers. The investor offered a compensation package that includes providing one job per family and paying compensation in the form of equity participation besides direct cash payment. The Government of West Bengal has well complemented the good work of the investor by rendering efficient bureaucratic services, making Government land available for the project and granting the SEZ status to the project. The process of land acquisition has seen no middlemen and other rent seeking agents.

The successful model of land acquisition outlined above contains the following key elements of success:

a) Use fallow and waste land for industrialisation: Productive lands must be avoided for setting up industries. The opportunity cost of waste and fallow lands is limited and hence people do not expect very high compensation for this land. The success
of investment projects in the Kutch region of Gujarat and the success of land acquisition in Salboni area of West Bengal by the Jindals reinforces this aspect.
b) Direct communication and bipartite discussions: The investor needs to talk to the locals directly as confidence building helps with local stakeholders as well as brings transparency into the deal. This will minimise the information asymmetry and private rent-seeking opportunities available to the outsiders and middlemen. The shining example for this is the land acquisition for setting up of the Bhadres Lignite Power Plant in the Barmer district of Rajasthan. Many farmers who initially refused to give their land to the Rajasthan government, have later given land after Jindal Group CEO Sajjan Jindal met the locals in person.
c) Coordinated corporate communications: Given the low literacy levels of local communities, wrong signals can adversely affect a land acquisition process. Issuing press statements and media reports need to be minimised during the implementation of land acquisition process.
d) Equitable benefit sharing: The compensation package needs to provide a share of future profits of the industrial project to the locals. JSW Bengal Steel in Salboni area offered shares of the company, equivalent to the value of the land, free of charge to the locals besides other benefits. In the case of land acquisition for Bhadres Power Plant, the Jindal Group has taken the land on rent for mining so that the farmers do not forego their ownership rights. After mining, the land would be levelled and given back to the farmers. Hence, the locals will not forego future potential gains in case the land prices appreciate.
e) Speedy acquisition process: The land acquisition process needs to be faster in order to avoid the attention of unnecessary rent-seeking elements and problems of information asymmetry with the locals. Contrary to this, a slow pace of land acquisition usually increases the chances of locals being influenced by rent-seeking agents. Slow process also gives an opportunity to outsiders and media to meddle with the acquisition process thereby leading to complications of the issue.
f) Replacement value as compensation: Land acquisition often puts an end to land-dependent livelihoods and also takes away future economic prospects and social standing associated with ownership of land. To add to this, for the people with land-based livelihood, finding alternative income sources in the non-farm sector is difficult in view of limited employment opportunities and additional skill requirements. Therefore, compensation for loss of land and immovable assets needs to be given at replacement value to enable those affected to restore their livelihoods in a sustainable manner. The present system of paying compensation at market value should be changed with replacement value of land.
g) Adequate rehabilitation and resettlement package: The investor must prepare a fair Rehabilitation and Resettlement (R&R) package that reflects his sincerity in restoring livelihoods lost due to the project and value to the true loss of the locals. The R&R policy must reflect a vision for a better tomorrow. On the other hand, in a vague R&R policy, a package that doesn’t consider the loss of common property resources, damage to environment, loss to forest-dependent livelihoods and is vague on employment guarantees for the displaced will be resisted by the locals.

The ingredients of a successful land acquisition experience are less fertile land, equitable benefit sharing, direct negotiations with stakeholders, avoiding alignments with political forces and rent-seeking agents, and maintaining direct communication channels. By acting as a mere facilitator, the government will play a critical role in land acquisition. Acquisition of temple lands, lands belonging to crematoria, schools and residential houses for industrial purposes must be avoided.

The author is President, ASSOCHAM.

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