Tuesday, October 8, 2013

Land Acquisition Bill - Impact on Real Estate and Congress in 2014

Around 3-4 years ago several protests erupted across the country over land acquisition issues. Many highway projects were stalled because of this too. I had highlighted in my article in 2010 (Click here to read) how China passed a major land acquisition bill that kick started their economy since 1998. In fact, there has been no legislation that defined how the land will be acquired and what compensations must be given since 1894 when the British first introduced it. Land was acquired and no fair compensation was given to any land owner. This caused outrage, protests - popular amongst these being Singur protests in Bengal where farmers were killed because they didn't want to give up their land.

Congress worked hard to get a bill because the farmers vote bank was one they couldn't afford to lose. But it kept on delaying this bill until it found an opportunity at the time of elections to get it passed in a hurried manner. Mrs. Sonia Gandhi, I guess took this as a personal project. She somehow asked all her party members to get it passed. Now, the BJP had to support it because it too has farmers vote banks in several states. Even if the BJP had opposed, Congress knew how to get the bill passed (hook or crook). This bill has many good provisions, yet the process to get to these provisions in reality is corruption prone and will only take us back to good old days of government control over everything.

Some salient features of this bill: (Source where numbers are got). MY comments are in Red below
  • 70% of land owners and workers/affected families consent required for public-private projects and 80% in case of private projects.
  • Compensation amount is upto 4 times market price in rural areas and two times in urban.
  • Any land that is very fertile cannot be acquired and must be done as a last resort and states will apply restrictions regarding extent of such an acquisition. If states do want to take this then the state government needs to pay the value of agricultural land upfront (this is excellent since fertile lands should not be used for anything but agriculture)
  • Only if no unused land is available (determined by the Collector) shall a farm land be acquired.(Can't the collector be bribed? If so, what happens). The collector can be fined upto 4 times in case he doesn't update records accurately since the compensation is heavily dependent on this.
  • Any affected family (agricultural labourers, tenants including any form of tenancy, share-croppers or artisans who depend on this land since 3 years prior to acquisition) can accept a) employment which will be in addition to training, and skill development with monetary benefits such as Rs.50,000 transportation expenses and resettlement expenses. b) Or accept Rs.5 lakh one time payment, plus Rs.2000 per month for 20 years with inflation adjustments. c) Affected people will get Rs.3000 per month for 1 year. d) If the affected people include artisans then minimum amount (one time) must be Rs.25,000. (Good provisions! But how will payments be made? Can't it be connected to AADHAR or bank accounts directly? It needs to be else there will be corruption for sure). All this money that the recipient receives is exempt from TAX. (Wow!! That's better)
  • In case of acquisition of land for irrigation or hydel project the rehabilitation and resettlement shall be completed six months prior to submergence of the lands proposed to be so acquired.(Good provision, at least money is given before land is acquired)
  • The Collector shall take possession of land only after ensuring that full payment of compensation as well as rehabilitation and resettlement entitlements are paid or tendered to the entitled persons within a period of three months for the compensation and a period of six months for the monetary part of rehabilitation and resettlement entitlements commencing from the date of the award. However, families will not be displaced from this land till their alternative R&R sites are ready for occupation.(This is even better because land owners may not trust their buyer as seen in several cases).
  • Any land belonging to tribals, SC/ST communities - shall be paid 1/3 of compensation amount upfront and the land must be acquired only after consent of the Gram Sabhas of that region. SC/ST communities do get additional compensation if their land is taken. (Good part is tribals are protected. It is the forced acquisition of tribal lands that has led to Naxal movement in several parts of East India)
  • Social Impact Assessment Reports need to be carried out by government appointed experts with the Panchayat heads and must be discussed with them and Panchayats have the right to reject (good, but overreaching because any deadly nexus between the two could be disastrous on end and on the other hand industrialists will have to wait big time to get their land).
  • Social Impact Assessment Reports must be done within 6 months.
  • State Governments allowed to add more laws to enhance the same. In case the acquired land is not used for the intended purpose then the govt can use it for another purpose or return back to landowners. In case of return it has to be done within 5 years.(Can't it be done faster?)
  • If the State Govt acquires the land and then sells it to a 3rd party for another price, then 40% of the appreciated value needs to be given to landowners.(Good Indeed!!)
Major issues with this bill - 

1)Time and increased costs associated with it and will take India back to pre-liberalization era:
It takes 6 months to do Social Assessment Impact, then another 1 year for further notification and approvals and then so forth. Why should the state sit and do this work? Why would so many layers of bureaucracy come in way to acquire a land? Why can't we have a regulator? At least regulators are better off than state governments and its various committees which will be corrupt and less interested in encouraging projects. The chart below will explain why this bill adds 50 month wait time(chart source: economictimes)

When land acquisition takes this long, it does affect industrialists. They cannot infinitely wait to start a business. This bill is heavily in favor of land owners rather than buyers. So, where should a border line be drawn so both interests are satisfied? There is no easy answer. However, given the lethargic bureaucratic system we have, multiple authorities and multiple approvals would take us back to pre-liberalized days and this is unacceptable. The time for clearance must be more only for exceptional cases rather than normal ones.

2) This bill is so outdated with respect to consultation process in that Chief Secretary and various other committees will decide everything. This is not the way highways are done, this is not the way telecom market grew, this is not the way insurance market is growing. Who would decide what the procedure of consultation is? How will the consent be taken - any verbal agreement or written agreement? It is left for states to decide? Such a regressive policy makes no sense. This provision is the most disastrous and poisonous provision of this law.

3) The Real Estate costs will only escalate with time. Any delays will impact the costs and corresponding compensation dearly. Imagine if a builder wants to acquire a piece of land how much time and money has to be spent in compensation, bribing officials to clear their tenders and projects and in the actual execution. Naturally, the costs will be passed to tenants, residents and eventually escalate the costs of buying or owning a house if the builder has to pay 4 times the compensation to the land owners. At least, if the clearance process is faster we will be better off. Our Environment Minister Jairam Ramesh is having an excellent track record for the past 5 years to stall every industrial project citing environmental concerns.

4) Will an Environmental Ministry hurdle come despite clearance from the Govt for a piece of land? The law doesn't seem to clarify on this. If yes, then forget we are moving to 21st century; we are already back in 1970's.

5) There are several constitutional flaws in the law. This article explains how Govt can still misuse an acquired land for public purposes.

So, while Congress can use this to their electoral advantage, industries have already begun to hate this law. Unless a borderline is drawn the legislation despite some of the best provisions can be a very outdated law with respect to time.

Remember, Indira Gandhi did this kind of bureaucracy in every department and every sector thereby causing the current corrupt state of the country to be what is. Had she thought of liberalization her tough leadership would have propelled India into a developed country right in the 1970's. The bureaucratic system and license raj system she introduced is precisely what many legislations of UPA are filled with under her daughter-in-law Mrs. Sonia Gandhi. 

At the end of the day it is quite obvious that Congress will sell this policy as pro-farmer with the expectation they will return back to power and who knows this may well be the truth come 2014.