A law that locks industry out of land

If approved by the President, the new land acquisition law will have the potential to derail industrialization
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First Published: Sun, Sep 08 2013. 08 48 PM IST
Illustration by Shyamal Banerjee/Mint
Illustration by Shyamal Banerjee/Mint
The United Progressive Alliance (UPA) government continues to march to the tune of signature laws. Last week, the Rajya Sabha cleared the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013. When the President approves of it, the new law will replace the Land Acquisition Act of 1894. The new law is likely to create more problems than it seeks to solve.
The older law had a history of abuses. Abuse of eminent domain powers—by which a government could take away any land for public purpose, however flimsily defined—was rife under this law. Predictably, it led to a backlash.
The law passed last week, however, swings to the other opposite. It virtually makes it impossible to acquire land in a reasonable time. Even if one ignores the debilitating increase in monetary compensation that has to be dished out, the killer in the new law is the huge time required to acquire land.
Under the new law, there are a series of steps that a land acquisition process has to follow. From the initial social impact assessment (SIA), which has a time limit of six months, to the final award of possession of land by the collector, an estimated 50 months, or roughly four years will pass. From an economic perspective, the 18-24 months needed to possess land under the older law was thought to be a major weakness. This was something the new law was expected to resolve. Instead, an estimate by PRS Legislative Research shows that it will double this time required to 50 months. This is a conservative estimate and does not include the possibility of extensions. For example, no time limit has been specified for the examination of the land acquisition proposal and SIA by a government. Then, the time from the preliminary notification to the survey of rehabilitation and resettlement will be specified by rules made under the law. It needs no elaboration on the havoc time overruns can play with any project’s financial and economic viability.
A recent Standard Chartered research note pointed out that under the 1894 law, the percentage of projects delayed due to land acquisition problems increased from 3.55% in 2007 to 11.3% by the end of 2012-13.
The other issue that defies economic logic is the compensation structure under the new law. Land acquired in rural areas will require compensation four times its market value. In urban areas, this figure is double the market value. The logic behind higher compensation for rural land could possibly be the fragmented nature of the land market that ensures prices on offer may not reflect a fair value. This is a dubious argument. In urban regions, because of the depth of the market, land prices more or less accurately reflect market price.
Seen together, however, this will ensure that India has missed one more opportunity to industrialize. Take the issue of location of industries first. Any planner (and we are returning to the age of planning, be sure) will tell you the site of an industry is dependent on three factors—availability of raw materials, availability of abundant labour and distance from markets where the output is to be sold. Even if one ignores the first and the third factors, abundant labour requires that industries be situated in areas where employment potential is high. Put differently, if industry has to serve as a vehicle for employment, then the location has to be India’s high population density regions—largely rural states such as Bihar and Uttar Pradesh—that are crying for industrialization. The new law makes this unlikely.
In fact, even before the presidential assent, votaries of a tighter land acquisition regime seem to be viewing the 2013 law with some trepidation. For example, N.C. Saxena, a former member of the National Advisory Council, recently argued that the new law will be anti-farmer and anti-industry. Saxena recommended that collectors be empowered to negotiate and acquire land upto 100 acres without resorting to the cumbersome procedures prescribed. This is like going back to the older law, under which a collector could notify acquisition under section 6(2). The only difference, if only for the sake of appearance, is to placate the lobbies that demand justice and rights for farmers. But that stage is long gone and these votaries of the new law should have spared some thought to the consequences of their action while there was time.
Will the new land acquisition law spell the end of efforts to industrialize India? Tell us at views@livemint.com
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First Published: Sun, Sep 08 2013. 08 48 PM IST
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