Land Acquisition Bill: MORE QUESTIONS THAN ANSWERS

by Mr. SACHIN NIGAM, CRISIL Real Estate Star Ratings

Analyses the impact of the Land Acquisition Bill on the industry, highlighting the feasibility of such a plan at the implementation level

Land reform has been a neglected social agenda in India for decades.However,sidelining this very important issue has also come at an economic cost, particularly in recent times.

So, when India's industrial output dipped to barely over 1% in the last fiscal, not to mention the overall global environment &  the looming general elections at home, the need to boost domestic growth was being clearly felt.Since land acquisition laws were seen as a major roadblock to growth, the government decided to pass a new Land Acquisition Bill, which it hopes will act as a silver bullet.

The Bill reflects the determination on the government's part to finally introduce more clarity and fairness in land acquisition,especially for the private sector.However,while the overall thought is positive,it is unclear the extent to which the Bill will succeed in creating its intended impact.

MORE QUESTIONS THAN ANSWERS..

The Land Acquisition Bill replaced an antediluvian British law and thus,was expected to reflect modern realities more accurately. However,it seems to create more questions than provide answers.

For one, the Bill talks about land parcels that are rather large (50 plus acres in urban areas and 100 plus acres in rural areas).

In urban areas, including towns / cities, such parcels are rarely seen. While such large tracts may be available on the periphery of towns and cities, even in these areas, ownership of land is largely in the hands of private parties & not farmers. Therefore, the Bill will not really make a difference to land acquisition for urban real estate or industrial purposes.

So, who will be affected The companies in the infrastructure & manufacturing sectors  -  two 'bulwark sectors' that are known to require larger tracts of land in the exteriors of cities & towns, will have a tougher time acquiring land.

This is because of two key reasons - the mandatory consent provision & the incremental duration and cost burden that will hit private projects where it hurts them most, i.e in terms of financial viability.

MANDATORY CONSENT,TIME AND COST CHALLENGES

Under the mandatory consent clause, the land acquirer must perform a social impact assessment (SIA) of the land sought for acquisition. The results of this SIA have to be submitted to an expert panel for approval. Once the displaced and affected families are identified, the acquiring firm or agency must get consent from 80% of the families for a private project and 70% for a PPP (public private partnership ) project.In a country where land ownership is often fuzzy, owing to lack of proper documentation,this creates an initial stumbling block for companies seeking to identify genuine stakeholders whose consent is required.

Even if that were done,there are 2 contentious clauses relating to compensation and rehabilitation and resettlement (R & R).Payment for the land (ranging from 2 to 4 times its market value) and the R & R amount (which includes a monthly subsistence allowance for one year, along with a one-time payment of  Rs. 5 lac or a job / monthly payments for 20 years, and house / land,as the case may be), has to be given upfront, thus increasing the overall cost of doing business.

The industry fears that getting actual ownership of the land could take at least four to 5 years, which in turn,increases their time-to-market and also compounds the interest cost burden.

Companies are also worried about the fact that the Bill will apply retrospectively to cases where land has not been awarded yet. All of these factors clearly hint at an increase in project gestation periods, which, even in normal circumstances, was already on the higher side.

The likely upshot of this Bill will be increased caution on part of the manufacturers &  infrastructure companies while buying larger plots of land,unless they are already in private or / government hands.

Those who venture forth, will have no option but to transfer the increased cost of doing business to the end-user. Even PPP projects, which the government frequently undertakes in the roads or /  energy sectors, could run into challenges because of the large acreage required.

Ultimately, newer land usage &  development models will emerge in order to save the time &  costs associated with land acquisition.

The famous Magarpatta model - where land - owning farmers outside Pune turned into real estate developers &  built a modern 400 acre city with an IT park,is one example.

Similarly, alternatives to land acquisition, like land lease &  joint development, will be increasingly explored. However,the suitability of such models to manufacturing or infrastructure remains to be seen.

Also, the clear segmentation of land (taking into account the requirements of the Bill) for specific usage, could soften the effects of the Bill on the private sector.Some steps that could be taken include digitalisation of land records, topographical studies &  classification of areas where industries can come up without necessarily having to use agricultural land.

These would go a long way in emboldening the corporate sector to go ahead with their development plans, instead of putting them on hold. While farmers' interests should take top priority, any policy change needs to complement growth, without impacting the growth of other segments.

The pursuit of enduring economic growth necessitates finding a middle path between conflicting social & economic objectives.

The writer is senior director, CRISIL Real Estate Star Ratings

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