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Business News/ Opinion / Online Views/  A business case for the new land acquisition law

A business case for the new land acquisition law

Contrary to misgivings, the new land acquisition law will simplify many problems businesses currently face

A file photo of people protesting against the land acquisition policy in New Delhi. Photo: Manpreet Romana/AFP (Manpreet Romana/AFP)Premium
A file photo of people protesting against the land acquisition policy in New Delhi. Photo: Manpreet Romana/AFP
(Manpreet Romana/AFP)

Much has been said and written about the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill that was cleared almost unanimously by both Houses of Parliament last week. It has been argued by some that the new law will hurt industrialization and economic development by making land acquisition 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 (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 go for a new law? The experience of the last few years had made it clear that the current model of land acquisition, which uses an archaic Land Acquisition Act of 1894, was not working. This law, which gives sweeping powers to governments 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 overruns. 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 upfront, rather than run into trouble downstream.

What are the innovations in the new law that could make it a win-win choice?

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 to ensure the process does not drag on forever, and instead can be completed expeditiously (there are no timelines in the existing law).

Third, recognizing the diverse circumstances of states, the new law gives the state governments substantial flexibility. 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 lands 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 governments 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 industrialization 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. Contrary to popular perception, the incremental costs to new projects as a result of this law may not be substantial. 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, automobiles and refineries and the internal rate of return of these projects will not be materially affected by the new law. There is no doubt 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, which has already started. Land records, which are poorly maintained in many states, will need to be updated and modernized. The states will have to define clear protocols to ensure efficient and timely implementation.

But, it is almost a good sign that in our raucous democracy, no one seems to be fully satisfied with the new law.

Varad Pande works for the Union ministry of rural development. Comments are welcome at

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Published: 09 Sep 2013, 03:45 PM IST
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