How new land acquisition law will delay, increase cost of projects

The new land law, that will replace 120-year-old archaic regulations, is expected to delay and spike costs of major housing, infrastructure and industrial projects, experts and industry people say.

"Cost of land will go up and the time taken for acquiring such land will also get prolonged, as rehabilitation and resettlement policy will be applicable," said Raheja, chairman and managing director of Raheja Developers.

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012, that seeks to replace the Land Acquisition Act, 1894, was passed by parliament last week. It will come into effect after the president gives his assent and the act is notified.

The bill proposes a unified legislation for acquisition of land and adequate rehabilitation mechanisms for all affected persons.

Representational image: PTI

Representational image: PTI

According to research and rating firm Crisil, the new legislation will lead to an increase in the gestation period of major projects and spike overall costs.

"Our interactions with industry players suggest that the overall project costs will increase by around 3-5 percent," Crisil said, adding the increase in overall costs will impact the "viability of such projects".

According to the proposed law, consent of 80 percent of landowners will be required in case of land acquired by private companies and 70 percent for land acquired under Public Private Partnership (PPP) model for public purpose.

Compensation will be up to four times of the market value in rural areas and two times in urban areas. Land cannot be vacated until the entire compensation is awarded to the affected parties.

"The cost of land acquisition will surely go up for all projects irrespective of them being government or private or PPP, as they will have to adhere to the new norms," said Sanjay Dutt, executive managing director for South Asia at global property consultancy firm Cushman & Wakefield.

Dutt said the clause of mandatory consent of 80 percent of owners for private projects and consent of 70 percent landowners for PPP projects will delay the process of land acquisition and the projects in turn.

"As land titles are not clearly documented in our country, it will take quite some time to change the current situation. The bill is expected to add to the costs of project substantially," Dutt said.

The provisions of the new regulations would be applicable in cases of land acquisition of 50 acres or more in urban areas or 100 acres or more in rural areas.

However, some analysts argue that the new regulations would bring more certainty in the land acquisition process, provided the law was implemented properly.

"The law will bring more certainty on a critical issue impeding infrastructure development," said Manish Agarwal, executive director, infrastructure, PricewaterhouseCoopers (PwC) India.

"The government may need to bear the cost of land acquisition since user may not be able to bear the cost in all cases. This balance between cost to tax-payers and users remains critical in design of PPPs," Agarwal said.

Rehabilitation and resettlement is an integral part of the new legislation. Many big projects have been delayed or aborted across the country due to the issues related to rehabilitation and resettlement.

The proposed law lays down that rehabilitation and resettlement compensation should be house, one-time allowance and either Rs.500,000 or a job or inflation adjusted Rs.2,000 per month for 20 years, for the affected family that includes farm labourers, tenants, sharecroppers and workers.

President of PHD Chamber of Commerce and Industry Suman Jyoti Khaitan said the new legislation would quicken the process of project implementation.

"The new law will facilitate rights of landowners, promote industrialisation at a faster pace, mitigate law and order issues and would bring transparency at large," Khaitan said.

"However, implementation part is very critical to achieve desired outcome as there are minimum 55 approvals required to implement any project," he said.

IANS