A business case for the new Land Acquisition Act
Much has been said and written about the new Land Acquisition Bill (The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill) that was cleared almost unanimously by both houses of the parliament last month. It has been argued by some that the Bill will hurt industrialisation and economic development by making the land acquisition processes slower and more expensive. But a contrary argument, that the new law could in fact reduce uncertainty, streamline the process, lower acquisition costs, and create a ‘win-win’ model of land acquisition, is equally, if not more, plausible.
First an important clarification - the new law does not apply to privately negotiated land purchases (except Rehabilitation and Resettlement or R&R provisions that will apply to “large” purchases, for which thresholds are to be determined by state governments). The new law’s ambit is limited to situations where the government is acquiring land for a public purpose to be used by itself or by a private entity.
So why bring in a new Bill?
Experience of the last few years had made it clear that the current model of land acquisition, which uses an archaic acquisition law enacted by the British rulers in 1894, is not working. This law, which gives sweeping powers to the State to acquire land from citizens literally at a whim, is no longer tenable in the India of today. With more empowered citizens, a vibrant media, a loud civil society and an interventionist judiciary, it is simply not possible to hoodwink and short-change citizens losing their land. As a result, today most acquisitions face protests, major delays and cost over-runs. Such uncertainty helps neither the land losers, nor those acquiring the land. The new law takes the view that it is far better for both parties to compensate fairly and ‘get the process right’ up-front, rather than run into trouble downstream.
What are the innovations in the new Act that could make it a win-win?
First, the new law calls for a social impact assessment (SIA) to be undertaken before land is acquired. The SIA is essentially a detailed project report examining and justifying the requirement of land and bringing local people on board. Instead of being an additional bureaucratic layer, the SIA can proactively address key issues that repeatedly stall acquisitions today. For example, an enumeration of affected families upfront through the SIA can ensure that there are no misclassification issues later on, which happened, for example, in the high profile problem cases of Singur and Nandigram in West Bengal.
Second, the new law prescribes clear timelines for different stages of the land acquisition process (for example, six months for the SIA) to ensure that the acquisition process does not drag on forever, and instead can be completed expeditiously (there are no timelines in the existing law).
Third, the new law recognises the diverse circumstances of Indian states and gives substantial flexibility to the state governments. A sliding scale allows states to fix compensation in rural areas between two and four times market value (earlier this was fixed at four times across the country). States can determine whether and how much multi-crop irrigated land they want to exclude from future acquisitions, and can also determine the thresholds at which R&R provisions apply in private transactions. States have also been given the flexibility to ‘lease’ land to industries on a long-term basis.
Fourth, in order to prevent a spiralling effect in acquisition costs, the definition of ‘market value’ has been amended to ensure that price paid in one acquisition does not form the basis for compensation calculation in future acquisitions.
Paradoxically, by encouraging the State to be judicious about the amount of land they acquire for each project, the new law can help ensure that we get more efficient land use, ensuring more optimal use of India’s scarce land resources for industrialisation and development in the long-term.
It is true that the new law stipulates higher compensation and R&R payments. But this has a major upside – lesser heartburn among losers, leading to fewer protests, lesser litigation, and consequently speedier acquisition. And contrary to popular perception, the incremental costs to new projects as a result of this law may not be substantial. N.C. Saxena (National Advisory Council) has argued that project costs will only go up by approximately 3.5% for most sectors. A recent analyst report by an investment bank shows that the cost of land constitutes less than 5% of capital expenditure in sectors such as power, steel, autos and refineries, and that the Internal Rate of Return (IRR) of these projects would not be materially affected by the new law.
Of course, we would be the first to admit that a lot of further work is needed for the law to work as described. The SIA process will need to be detailed and streamlined – this has already started. Land records, which are in a poor state in many states, will need to be updated and modernised. The states will have to define clear protocols to ensure efficient and timely implementation.
It is almost a good sign that in our raucous democracy, no one seems to be fully satisfied with the new law. Industry feels that the new law makes acquisition complex and expensive. Civil society and political parties feel that the new law does not go far enough to address the concerns of land losers (indeed a sentiment expressed across party lines in the debate in Parliament). This suggests that the new law strikes a fine balance.
Varad Pande currently works with the Ministry of Rural Development, Government of India. The views expressed are personal.A version of this article has appeared on Live Mint (www.livemint.com).