Land acquisition law: no pain no gain

Speculations are rife that land prices would shoot up 20 to 40 per cent as a result of the new Bill, depending on whom you ask. There are a thousand things that can be wrong about the new Act. But there are as many rights. Let’s be fair: the new land acquisition Act-renamed to include the social justice that it sets out to ensure-is at once pain and gain. The most positive features about the enactment of the law will be the definitiveness it will bring into project planning, and the social development that will convert over time into better user payments and project viability, says Shashidhar Nanjundaiah.

The infrastructure industry desperately needed a straw to clutch onto. Until 2012, the industry clamoured for passing of the Land Acquisition, Rehabilitation and Resettlement (LARR) Bill 2011 in the Parliament. On 29 August this year, the Lok Sabha passed it with a thumping but predictable 216:19 majority, and the Rajya Sabha passed it (and tossed it back to Lok Sabha with amendments) on 4 September with a similar number (131:10)-political parties would be dumb not to say "aye" to a politically fraught move that would benefit more than 109 million households that depend on agriculture-related occupations in rural areas. The union rural development ministry will heave a sigh of relief-especially given the pressure from political and industry fronts to revise the extant, draconian 1894 Land Acquisition Act.

In doing so, it may have sighed too soon. The industry-including the infrastructure industry-is now largely shaking its head at the Bill, saying it will lead to delays and cost overruns. Considering we’ve surely had enough of those problems, let us see how this can happen.

The principal Act permits land acquisition if the land is to be used for a ‘public purpose’ project, where ‘acquisition’ refers to forcibly obtaining land without consent of the land owner. The Bill defines ‘infrastructure’ as any project relating to electricity, construction of roads, highways, bridges, airports, rail, mining activities, water supply, sanitation and sewerage, and any other notified public facility.

Social Impact Assessment

The 2007 draft clause on assessing the social impact of a project has been retained in the latest version. According to the Bill, if land acquisition results in the displacement of 400 families in the plains or 200 families in the hills or tribal areas, the government must conduct a social impact assessment (SIA). The study will include the effects of displacement, a Tribal Development Plan, and provisions for infrastructure development in resettlement areas.

If the impending length of SIA intimidates the industry, there is enough history to back that fear. Any government clearances have been the numero uno project-poopers-at least in the perception of private practitioners. The government, on the other hand, depends on private partners in PPP, for example, to prod government agencies towards a speedier end, and will hope that the private partner will repeat that act.

Pricing and empowerment: The clause that mandates how many multiples of the market value of land should be given out as compensation to the land-loser is much maligned. Four times the market price of rural land and up to twice the value of urban land in order to acquire it for public works or industrial use seems to many industry practitioners as somewhat of a largesse, because of the snowball effect it is likely to have on market prices of land.

India has the costliest land in the world. To escalate it further cannot possibly be a good idea. Yet, by setting the price higher than normal, the Bill aims to empower the land-loser more, enticing more trade and willingness to sell the land. That dynamism will result in better disposable incomes and better economy overall. That kind of empowerment may also provide a shot in the arm of doing business in India.

The trouble with that argument, it is at best applicable long-term. In the short-to-medium term, pricing will turn out to be a deterrent.The other problem with escalated pricing is that of cash flows. Having to spend more on land upfront creates more pressure on cash flows. Land cost has been a major influencer in decision making of project owners, so this may be impacting the decision making process.

Economic booster

While the R&R clause will made non-mandatory for agriculture projects, infrastructure projects will have no such respite. Why should R&R be part of a land acquisition bill at all, industry practitioners ask. The argument is that it is a trigger for a social dividend that should be in the hands of the government. Reforms have brought about a major boost in per capita income and alleviation of poverty. While 51 per cent of India lived below the poverty line in 1991, when the government liberalised the economy, that figure is expected to be 22 per cent by 2015. Yet the worry has been the growing disparity between the rich and the poor-leading to a dire need for "inclusive reforms". In addition to putting logistical and other physical infrastructure in place in the rural areas, industry will largely benefit from a more empowered rural India.

It is now a foregone conclusion that PPP projects are up against viability issues stemming from user ‘payability’. Mumbai Metro’s line II was recently scrapped partly because, the private partner Reliance Infra claims, its requests for tariff revision were rejected by the state government. Therefore, incredible as it may sound, Mumbai’s metro project may have been scrapped because of viability issues! Similar exits from highways projects because private partners like GMR, GVK and Ashoka Buildcon realised after winning bids that despite volumes, tolls and tariffs from general public posed such a big problem that it was simpler to exit the project.

Under the new land acquisition norms including an elaborate and relatively costly R&R procedure, the cost of a project will increase. Coupled with an upfront land cost that will now be two or four times more than what the industry is used to-locking up that much more cash up front. But can this be seen as a dividend? Over long term, will it mean that the average Indian will be able to afford tolls and power tariffs better? If that argument is acceptable, then it should follow that projects will become more viable in the future.

Bottom lines

If the government is serious about a transforming effect from the land acquisition law, it must also ensure that it catalyses projects. While it is good that the bill provides much more latitude than before to states, states must now take upon themselves to use the land law to boost infrastructure projects by easing the problem of cash flow and of having to spend much more than now on land acquisition upfront. Instead, a purchase-plus-annuity model, whereby an upfront price equalling 100 per cent of the market price can be combined with a long term annuity that is lucrative. The land-loser would receive the same, or at least similar, amounts, but over a period of time. This would ensure a) the land-loser stays connected to his prized property in some way, b) he gets connected to the project in an integral way, and c) his income is perennial-leading to better ‘payability’ discussed earlier.

Further, stringent timelines must be set to both private and public partners. Currently, there are none. For example, the 12-month period for SIA should be made an accountable item. In case of infrastructure, land acquisition itself must be made time-bound, set within reasonable boundaries that depend on the size and complexity of the land. In the absence of clearances ensuing within the timelines, they should be deemed.

The bottom line is, does the bill bring about social justice? Without a doubt. Can it be implemented to ensure the justice? With plenty of doubt.

The broader question will remain, whether in a PPP project, the private partner should be roped in to develop the underprivileged land-loser, or focus on viability and project efficiency.

STRIFE FOR LAND

Some high-visibility incidents against infrastructure projects, 2007-13

• Riots protest against the forcible acquisition of their lands by the government for the Special Economic Zone at Sathyavedu in Andhra Pradesh (2007)
• Anti-SEZ agitation in Goa demands scrapping of all the SEZs in the state (2007)
• In New Delhi, about 15,000 flag-waving, slogan-shouting farmers squatted at a square near Parliament after being stopped by police in riot gear (2011)
• 78 Farmers protesting against forcible acquisition of their land for a 3600 mw power plant were arrested and several others lathi charged in Chhattisgarh’s Janjgir Champa district (2011)
• A protest by thousands of farmers against alleged forced acquisition of land has spread to parts of the northern Indian state of Uttar Pradesh (2011)
• Hundreds of stone-hurling farmers protested in Uttar Pradesh against the takeover of their land for two proposed power plants on Friday, police said, spotlighting challenges the country faces in building infrastructure (2011)
• Landowners in Bhadrak district of Odisha protested against Dhamra Port for what they claimed are paltry compensation amounts of Rs 2 lakh per acre. The claim was Rs 1.5-3 crore (2012)
• Widespread public protests against the Andhra Pradesh Government against acquisition of land for the 6,000-MWe nuclear power plant at Kovvada in Srikakulam district (2013)
• In Bihta, Bihar, seven farmers are on fast-unto-death protesting the acquisition of what they claim is three-crop land at differential and unfair compensation (2013)
• Demanding better compensation, farmers who have lost their land in the ring road project in Jaipur, are protesting against Jaipur Development Authority (2013)