Article: Law to land companies in trouble?

Strategic HR

Law to land companies in trouble?

India Inc is unhappy with the new land acquisition Bill as it will lead to cost overruns and make large projects unviable
Law to land companies in trouble?

The Land Acquisition Act of 1894 allowed the government to buy private land for public purposes, wherein “public purpose” meant the acquisition of land for constructing educational institutions, housing schemes, slum clearance schemes and for rural projects.

Apart from the central or the state governments, land acquisition could also be initiated by local authorities, societies registered under the Societies Registration Act, 1860, and co-operative societies established under the Co-operative Societies Act. Under this law, the government could forcibly take over land from the farmer and it neither required consent nor payment in some cases.

Antiquated and out of sync with the modern times, this law was a pre-independent era legislation passed by the British for enabling the government to acquire land for meeting the needs of industrialisation and in order to assist the promoters of industry and business, incidentally allowing entrepreneurs to possess cheap land in plenty.

The mushrooming of large scale infrastructure projects and Special Economic Zones led to widespread farmer agitations in different parts of the country. Concerns on land acquisition issues rose and the absence of a national law to provide for the rehabilitation and resettlement and compensation for loss of livelihoods ultimately led the Union government to finally change the century-old law and present the land Bill in Parliament in 2011.

After many heated debates, in September 2013 the Parliament passed the Land Acquisition, Rehabilitation and Resettlement Bill. The Right to Fair Compensation and Transparency was one of the most contentious parts of the new Bill along with other provisions such as: Mandatory to obtain prior approvals from owners of land; compensation for the land must be up to four times the market value of the land in rural areas and two times in urban areas; acquisition of multi-crop agricultural land must be limited to 5 per cent in a district; instead of sale, land can be leased to developers; land unused for 10 years should be returned to the owners; state government can increase compensation but not lower it. After widespread negative reactions from the industry, the government is proposing to make some amendments to the Bill and has sent it back to the Lok Sabha. But, more on that later.

India Inc is ill at ease. With the depreciating rupee already eating into their profit margins (Rupee closed at 63.38 on September 22), rising input costs and slowing down sales, organisations are unhappy that they have to deal with the new land acquisition Bill at this stage – One that threatens to further erode their bottom lines. So what is India Inc worried about?

Any large projects that require land – be it infrastructure, manufacturing or even retail industries – will now become very expensive thanks to the new definition of compensation. In an interview to Business Standard, Ajit Gulabchand, chairman of infrastructure firm Hindustan Construction Company (HCC), said, “It would be interesting to see how many projects manage to acquire land after this Bill.”

CII President S. Gopalakrishnan said the cost of land acquisition is likely to increase by 3-3.5 times, making industrial projects unviable and raising costs in the overall Indian economy.

The Bill, India Inc says, is not conducive to investments. With foreign players like UBS exiting India and Bharti Walmart venture on the tenterhooks, foreign investments seem to have come down to a trickle. Not only is this law a game changer, but it also will be implemented retrospectively. This means that the new law will be applicable to all pending cases of land acquisition. The land acquisition would lapse if no payments are made within five years.

The Bill has now been sent back to the Lok Sabha for dilution of a key clause – that of Relief & Rehabilitation. Unlike the previous law, the new one provides a house for every family displaced on the lines of the Indira Awas Yojna or a minimum 50 sq ft house in the urban areas. Otherwise, the family would get a one-time financial grant of Rs 5 lakh. The land owner will also have the option to get annual payment of Rs 2,000 a month for 20 years, which will be adjusted with inflation levels. Further, the affected family would also get Rs 3,000 a month for one year from the date of award.

The R&R bit was added after the country witnessed many clashes between the farmers and the government over land for industry – The struggle at Niyamgiri in Odisha, Singur and Nandigram in West Bengal etc are major examples of such clashes. Industry bodies are afraid that the new Bill will increase procedures and processes and this in turn will considerably increase the time taken to acquire land. The Federation of Indian Chambers of Commerce and Industry (FICCI) says at least five years would be required now to get land to start a project. The Confederation of Indian Industry (CII) says the Bill would raise the cost of acquisition five-fold. Both have opposed the retrospective effect provision as it would mean re-starting projects leading to considerable delays and cost overruns.

According to the new Bill, prior permission of 70 per cent of the affected families is mandatory in the case of public-private partnership projects. CII opposed it and said the provision of consent should be reduced to 60 per cent of land owners, uniformly and equally applicable to all cases, irrespective of its end-use.

In a country where half the land is used for agricultural purposes and people’s livelihoods are dependent on their lands, it only seems fair that the owners now get their due. For when large tracts of land were given to the industry for development, it led to the displacement of the local population and also in many instances the tribals. In fact, Minister for Rural Development Jairam Ramesh on September 7 criticised public sector undertakings (PSUs) for the displacement of many tribals blamed their actions for the growth of Naxalism in various states. He reiterated that the era of “forcible land acquisition” was over.

In an interview with Hindustan Times, Kaushik Basu, India’s former chief economic advisor and now the World Bank’s chief economist, said, “Voluntary exchange is at the heart of good economics. But a first mistake in this is to assume that because private acquisition does not create a political hullabaloo, it is non-exploitative. In such deals, big businesses use both carrots and sticks, with the issue of consent often delegated to goons who make sure that the farmers ‘voluntarily’ accept the offer.”

Businesses fear that it is a populist move ahead of the looming elections. But, the agony of people who have been displaced by large-scale projects earlier is still evident. For example, in Odisha, 52 families who supported the POSCO project, many forced out of Govindpur in 2008, are still in reportedly miserable conditions in a transit camp, according to The Economist.

In India, majority of people, who has sold their land to the government for such projects, have ended up poorer and on the streets. The distrust and the suspicion with which they treat any such project now are because life is never the same for the ones who are displaced; they have to live in transit camps; get little or no compensation; no jobs or land and are often neglected by successive governments.

Medha Patkar of the National Alliance of People’s movements, which has been at the forefront of many campaigns opposing land acquisition, said in an interview, “It’s a step forward in that it at least recognises that great injustice was being done under the old law, but it is also two steps backward,” says. “Why can’t the government get out of land acquisition for corporates and let the companies directly buy land from people?” she asks.

India Inc needs to think beyond profit margins and progress. They need to start thinking about what is good for the country – work towards the larger good for their own good.

Sources: The Hindu, Business Standard, Hindustan Times, The Economist

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Topics: Strategic HR

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