Land Bill a mortal blow to India’s modernisation

Sep 05 2013, 09:10 IST
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SummaryThe proposed law would significantly push up land costs in the country, leading investors to choose competing countries

The Land Acquisition, Rehabilitation and Resettlement Bill, 2011 (LARR) is set to become law. Clearly, Indian farmers who pay zero taxes and contribute a mere 12% of the GDP command unquestioned loyalty of the political class. All other interests and national objectives are subservient to them. Our apprehension, shared by many others like Sanjoy Chakravorty’s “On Land, No Lessons Learnt” (IE, August 30), is that LARR, if made a law, will pretty much sound the death knell of industrialisation in India. With LARR in operation, the commerce and industry minister has lost his battle and can just as well officially abandon the new manufacturing policy with its objective of increasing the manufacturing sector’s share in GDP to 18%. LARR will stop in its track the ambitious DMIC project and bring to a standstill the process of planned urbanisation in the country. In their populist frenzy, the political class, chasing electoral prospects, could be putting an end to all prospects of generating jobs in the industrial sector and permanently condemning the poor to live in slums. Let us explain.

The most damaging features of LARR are the extremely complicated procedures and provisions for any future land acquisition by the government for its own needs or for infrastructure projects to be undertaken via the PPP route. These procedures include: an open ended and complex social impact analysis for every acquisition; identifying those whose livelihoods will be affected and compensating them; sharing of capital gains with the original owner over the next 10 years; providing 25 different types of infrastructure services as part of the resettlement and rehabilitation (R&R) provisions; prohibiting land acquisition beyond 5% in districts with multi-crop agriculture and beyond 10% in all single-crop districts; requiring the approval of 80% of the land owners before acquisition can be completed; and authorising the district collector to arbitrarily determine the price of land rather than use a more objective basis for doing so. These complex procedures, put in place ostensibly to protect farmers’ interests, will end up hurting them as the Bill will unleash a tsunami of red tape, litigation and administrative discretion rather than diminishing them as should have been its real objective. The industry and real estate sectors’ demand for land will surely decline as PPP projects, which will face complete uncertainty in land acquisition, come to a standstill. This is bound to result in decline in land prices that will hurt the landowners and trap them in their current low productivity operations.

Moreover, the entire panoply of LARR’s R&R provisions apply with full force to private purchase of land (not acquisition by the government) if the size of the land being purchased is more than 100 acres in rural and more than 50 acres in urban areas. This is explicitly stated in Section 42 (clauses 1, 2, and 3) in Chapter VI which inter alia states that, “Where any person other than a specified person is purchasing land equal to or more than one hundred acres in rural areas, and fifty acres in urban areas, through private negotiations he shall file an application with the District Collector” who will “… refer the matter to the Commissioner for the satisfaction of all relevant provisions under this Act related to rehabilitation and resettlement.” And that each case will be individually examined. Therefore, all private purchases of land will be subject to administrative discretion and bear the substantial R&R costs. One can well imagine the extent of rent-seeking, corruption and harassment that LARR will unleash when it becomes law. Have the BJP and other opposition parties actually understood these negative aspects of LARR while supporting the Bill?

The complicated procedures and processes enshrined in LARR are in themselves sufficient to derail all future industrial and urbanisation projects. However, these are further exacerbated by the huge increase in land costs as a consequence of LARR’s pricing proposals, which could well make both industrial and housing projects simply unviable.

LARR proposes the following:

n Cost of land acquisition will be 4 times the market rate for rural land purchases and 2 times the market rate for urban purchases.

n Land owner compensation will include: (a) R36,000 as one-time allowance; (b) job for one family member, or R5,00,000 up-front, or R24,000 per year, adjusted for inflation, for the next 20 years. Landowners may choose between the two remuneration policies; (c) R50,000 for transportation of landowner; (d) R50,000 for resettlement; (e) buyer will construct a house if the landowner is being made to resettle; and (f) if the land remains undeveloped, but appreciates in value, at time of resale, the original landowner will receive 20% of the new value of the land;

n Livelihood loser compensation (a person/family, distinct from the landowners’ family, that generates its livelihood from the parcel of land in question and has been doing so for a minimum of three years) will include: (a) R36,000 one-time allowance per family; (b) Job for one family member, or R5,00,000 up-front, or R24,000 per year for the next 20 years; (c) R50,000 for transportation; (d) R50,000 for resettlement.

n In case any of the two categories are part of the SC/ST section, they will receive an additional (a) 2.5 acres of land; (b) additional allowance of R50,000; and (c) space for gathering, meeting and community. (It should be clarified that this pricing formulae applies only to acquired land and not to private purchase of land for which only the R&R provisions are applicable.)

On the basis of the above provisions and assuming that there is a single owner of a piece of land and five families have earned their livelihood from each acre of land, the increase in the price of land in 5 different locations in the country would increase nearly 7 times the current price for the land priced the lowest and nearly 4 times for the land priced the highest (see table).

The costs of R&R provision, detailed above and in addition, the costs of providing 25 infrastructure services, (spelled out in paragraph 17 of the Statement of Objects and Reasons) have to be added to the above price. The services to be included will add substantially to the price as these include: schools and play grounds, health centres, roads and electric connections, assured sources of safe drinking water, panchayat ghars, anganwadis, places of worship, burial and cremation grounds, village-level post offices, fair price shops and seed-cum-fertilisers storage facilities! It is not unreasonable to estimate that a minimum of R1 crore per acre would be added to the price of land on account of R&R and infrastructure services. On average, therefore, the price of land in rural areas will increase 5 times with LARR coming into force. LARR will make land far more expensive and make it subject to complex procedures and non-transparent administrative discretion.

Price of acquiring rural land in India will, according to the above table, range between $138,000 per acre (Nasrullaganj, MP) to $2.25 million per acre (Bahadurgarh, Punjab). This compares to $2,140 per acre in the US at current prices and $19,595 per acre in France (Financial Times, April 24, 2008). India’s competitors in Asia would offer land at a fraction of these prices and also active government support in acquiring them without the long procedural hassles. Is there any reason to believe that foreign or domestic investors will consider putting up manufacturing capacities under these conditions? If we assume that for putting up a 100 MW thermal power plant, an investor would require 50 acres of rural land. According to the accompanying table, it would imply a land cost of between R50 crore to R700 crore. With total fixed costs estimated at R6 crore per MW, these land costs amount to between 9% to a whopping 110% of total costs of putting up a thermal power plant. This will apply equally to all other manufacturing sectors and real estate projects. In the case of low-cost housing for the poor, the hike in land costs will make these projects completely unviable.

With these features, LARR could conceivably result in India’s de-industrialisation in the coming years. Its negative impact will also be felt by the farmers who will now be unable to move out of low productivity agriculture operations. The poor will suffer as well as they will not be able to afford proper housing. This cannot possibly be the objective of the political class in passing this Bill. As this article argues, the opposition parties can build a strong case for opposing the Bill on grounds that it will vitally affect the interests of those it seeks to support and in addition will result in a sharp decline in manufacturing activity in India. Surely we need to rethink before it is too late.

Rajiv Kumar/Prashant Kumar

Rajiv Kumar is senior fellow, Centre for Policy Research, and Prashant Kumar is director (projects), BRIEF, a New Delhi-based consultancy firm

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