New Delhi: A colonial-era law for land acquisitions in India has helped trip up several industrial projects, including Tata Motors’ plans for the Nano, adding to calls for reforms to keep investors attracted.
Talks began on Friday to end protests by farmers over the loss of their land to the manufacture of what has been dubbed the world’s cheapest car in the eastern Indian state of West Bengal.
The controversy has hurt West Bengal’s image as an investment destination, and also reflects a wider conflict between industry and farmers unwilling to give up land in a nation where about two-thirds of the billion-plus people depend on agriculture.
Discouraged by the protests, which have been led by the local opposition Trinamool Congress party, Tata Motors earlier this week suspended work in Singur, despite having invested $350 million, and said it was looking at alternate factory sites.
“It’s not good for India’s image overall as a manufacturing destination, and the state has certainly suffered a setback,” said Abdul Majeed, a partner at PricewaterhouseCoopers.
“On the positive side, perhaps now state governments will be more responsible and come up with clear policies for land acquisitions and compensations so this is not repeated.”
Land acquisitions are largely governed by a British-era law dating back more than a century that allows states to buy land for undefined “public purposes”.
Tata had leased the land in Singur from the state, and said it expects the project to create about 10,000 jobs.
“While the (Tata) issue has clear political overtones, the underlying problem of the lack of a framework for land acquisition by private investors is a real one,” said Seema Desai, Asia analyst at Eurasia Group in London.
An amendment bill and a new rehabilitation law have been pending in parliament since last year, Desai said.
Meanwhile, courts have stepped in recently to resolve disputes involving big projects, including South Korea’s Posco’s proposed $12 billion steel plant in eastern Orissa and Vedanta Resources’ plans for mining in eastern India.
“Land acquisition is an emotional issue that has also become very political and is riddled with vested interests,” said V K Jairath, an infrastructure consultant and former bureaucrat.
“There is a huge demand for land now from local and foreign investors, so we need a better policy, that takes into consideration the fact that a bulk of our people still live off the land. Plus our food security cannot be compromised,” he said.
India plans to spend more than $500 billion over the next five years on building roads, ports and airports, while local and foreign investors are putting money into steel, energy, automotive and other projects that require big areas of land.
Posco’s plans for tracts of forest land that could displace thousands of people were eventually greenlighted by the country’s highest court, which also cleared Vedanta’s mining proposal that had angered environmental activists.
“Some states have certainly had more than their fair share of problems, and if investors see this as the start of a trend, they could have second-thoughts about India,” said Ian Fletcher, an automotive analyst at London-based Global Insight.
“It may help to have the central government take over, or at least oversee, large investment decisions.”
While West Bengal was criticised for bias against farmers, other states have avoided conflicts, despite the law.
The western states of Maharashtra and Gujarat, and the southern state of Tamil Nadu have attracted large investments in recent years and have managed land acquisitions with minimal fuss, while some other states have struggled, Jairath said.