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Monday, 02 Sep 2013
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Land Acquisition Bill passed, but Indian Investors fear cost escalation


The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2012 was passed by the Lok Sabha in August 2013. The Bill replaces the century old Land Acquisition Act, 1894 with the aim of bringing in transparency in the acquisition process, and providing adequate compensation and rehabilitation to landowners and others affected by the acquisition.


Land Acquisition_ProjectsToday


The Land Acquisition Bill is applicable for private projects, public-private partnerships (PPPs) and for government projects, provided it is for a public purpose, that is, land used for strategic use by the armed forces, paramilitary, state police; for national security; for infrastructure projects, including activities listed under the department of economic affairs. Further, the provisions of the Land Acquisition Bill will only be applicable in cases of land acquisition of 50 acre in urban areas or 100 acre in rural areas.


In cases where private companies acquire the land, the consent of 80 per cent of those living on the land will be required while in case the land is purchased for PPP projects, consent of 70 per cent of residents will be required. As per the bill, the process of land acquisition will also include carrying out a Social Impact Assessment (SIA) to identify those affected by land acquisition, through public hearings of the families and to make a comprehensive social cost-benefit analysis. This assessment will be approved by a committee which will then be passed on to the state government for evaluation. Only after the state government issues a final notification for acquisition will the compensation process begin.


Compensation will be between two and four times the market value of land in rural areas, and up to twice the land’s market value in urban areas. The major development in the Bill over the previous Act is the inclusion of Rehabilitation and Resettlement of affected families under its purview. The Resettlement and Rehabilitation package includes a compensation of Rs five lakh or a job, if available, to the affected family; subsistence allowance of Rs 3,000 a month for one year plus miscellaneous allowances of up to Rs 1.25 lakh for each family. The definition of affected family includes farm labourers, tenants, sharecroppers and workers in the area for three years prior to acquisition.


The Cabinet also cleared the amendment that instead of acquisition, land could also be leased to developers so that its ownership remains with farmers and provides them regular annual income. The Bill also provides compensation to those dependent on the land for livelihood, that is, tenants and farm workers. In case the land is sold to a third party, 40 per cent of the profits should be given to the original owners.


A Land Acquisition and Rehabilitation and Resettlement Authority will also be established as a dispute redressal authority.


What India Inc says


Although one of the objectives for framing the Land Acquisition Bill was to expedite the land acquiring process, industry lobbies and representatives have expressed serious concerns claiming that the Bill will increase both, cost and time for acquiring land. The process of acquiring consents, and making and evaluating of assessments is estimated to take four years, which will delay the land acquiring process. The Bill is estimated to escalate project cost by three to five per cent which is likely to make many projects unviable. The projects which will be most affected are the ones coming up in the Infrastructure, Mining, Industrial corridors and Real Estate sectors.


Another major concern of Industries is the Retrospective clause which is applicable to all cases of land acquisition if the award under the earlier 1894 Act has not been made. In cases where land was acquired five years ago but no compensation was paid or no possession happened, it would have to be paid as per the current rates. This will severely affect projects where land acquisition process is going on or partial land acquisition is done.


Overall, the feeling is that the Land Acquisition Bill will increase the cost of even small lands that do not come under the purview of the Bill. It is also feared that investors may completely shun those areas which are known for land disputes which will thus hamper local development.


Are land owners better off?


As the Land Acquisition Bill will come under the concurrent list, state governments will be free to complement it with there own laws as long as the provisions of the Bill are not diluted. However, this could disrupt the uniformity of the bill across the nation. The Bill not only makes the State the ultimate decision maker when it comes to acquiring farm land, but Clause 63 prevents land owners from contesting state decisions. The Resettlement and Rehabilitation clause also gives no guarantee to jobs and as the Bill compensates different categories of affected families at par, not aligned to their losses, there could be cases where compensation calculated is lower than the market rate.


Even with its shortcomings, the Bill is a huge step towards bringing about transparency in the overtly complex land acquisition process in India. Even though Indian industries have given thumbs down to the Bill, for foreign investors looking to invest in real estate projects in India, the new law would clear issues related to transparency and title assurance. This could help build investor confidence.


The onus is now on how the Land Acquisition Bill will be executed on ground. State governments can make or mar the growth of infrastructure, and power investment based on how they implement this modern law.



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  • NTPC Tamil Nadu Energy has commenced commercial operation for 500 MW Unit-II of Vallur Thermal Power Project
  • Kerala to get three gas based power projects


Quotes of the week:


Jairam Ramesh_Minister of Rural Development_ProjectsToday

"There will be no forceful acquisition of land under this law. This legislation will provide lawful right of the farmers over their land and no right of forceful acquisition to government."


Jairam Ramesh,
Minister of Rural Development

Rajgopal Nogja_Hindustan Construction Co.Ltd._ProjectsToday

"Many projects are already languishing due to the failure of authorities to acquire the necessary land for development. The linear and multiple process norms will make land acquisition difficult and may result into even dropping of development idea itself in some cases."

Rajgopal Nogja,
Group Chief Operating Officer,
Hindustan Construction Co. Ltd

Anshuman Magazine_CBRE South Asia Pvt. Ltd._ProjectsToday

"An updated bill was required to replace the previous 1894 legislation for land acquisition by the Government for land owners to get a fair market value for their land. The intent was to protect land owners from forced acquisition of their land by the Government at a price determined by the Government. However the current bill also includes private acquisition of land which is not required as private transactions can only happen at a fair market value. It is already difficult to acquire land in India and this bill will make it more difficult and costly to acquire land and will act as a deterrent for investment into large township projects as well as the manufacturing and industrial sector."
Anshuman Magazine, Chairman & MD, CBRE South Asia Pvt. Ltd.

A Didar Singh_FICCI_ProjectsToday

"The Land Acquisition Bill passed today by Lok Sabha is expected to make key factor of production for manufacturing scarce and expensive. This certainly doesn't augur well for India's manufacturing sector. As we all know future jobs can be created if we are able to give necessary push to manufacturing in India. With passage of Bill, cost of land is not only go up significantly, even the process of acquiring land will get stretched by 4 - 5 years. FICCI hopes that going forward process will be simplified and government will extend all assistance to private sector in acquiring land. "
Dr. A. Didar Singh, Secretary General, FICCI

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