Rahul's worst legacy - the anti-growth Land Act - is about to be chewed to pieces

One of India’s most damaging laws - the Rahul and Sonia Gandhi-inspired Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Ac t, 2013 - is now likely to be substantially reworked. Yesterday (27 June), at a state revenue ministers’ meeting called by Rural Development Minister Nitin Gadkari (whose main portfolio is Road Transport), there was near unanimity that the Act will retard development in their states. Even Congress states do not want the law to stand as it does now.

What I feared two years ago now seems to be accepted wisdom. According to a Times of India report, many Congress-ruled states - Maharashtra, Haryana, Karnataka, Kerala, Meghalaya, Uttarakhand and Himachal Pradesh - and all non-Congress, non-BJP states (excluding West Bengal) “expressed serious reservations against the law,” while Delhi (ruled by nobody in particular right now) wanted total exemption from it. The BJP-ruled states of Gujarat, Chhattisgarh, Goa and Rajasthan wanted the Act scrapped.

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A Mint report on the same meeting quoted Gadkari as saying that states had problems with “many clauses in the law, barring the provisions relating to compensation, rehabilitation and resettlement.”

Several conclusions can be drawn from this meeting and its broad consensus.

First, this Rahul Gandhi gift to the nation was actually poison. It will definitely be amended by the NDA government to rescue growth. This is the best news we have heard so far on reforms. The Land Act was touted as reform, but it was the most anti-reform legislation pushed down our throats by labelling it pro-farmer. In India, if you say you are pro-farmer, no further proof of good intent or good sense is required.

Second, the consensus on not amending the compensation clause among states is troubling, since one of the biggest concerns about the law was it would make land acquisition prohibitively expensive. Clearly, politicians are not willing to be labelled as anti-farmer. Or, maybe, they see scope for further private gains from the corruption that will inevitable result from having to seek the consent of so many farmers and for final disbursement of the high levels of compensation provided. The Act says farmers have to be paid twice the market price for land near urban areas, and four times for land in rural areas.

Third, despite the certainty that the law will be changed, the NDA will face a tough fight in parliament, because of its political implications. Support from Congress-ruled states is not the same thing as support from Congress MPs in parliament who may choose to act on the advice of the Gandhi Dynasty. Since any changes in the law will be a slap in the face of the Gandhi family, which pushed it against all good advice before the elections, one can’t be sure the Dynasty wants it changed so soon. Let’s not forget, Rahul Gandhi has promised some arson if his pet projects are touched by the new government. He said in Amethi last month: “Main janata ke liye ladunga… Jahan janata ki nahi suni gayi, toh aag laga denge. (I will fight for the public… if people are not heard, we will start a fire).”

Fourth, the reality of Indian politics has never been more exposed than with this law. It shows that no one will oppose bad laws during election time for fear of losing votes. When the law was passed in the dying days of the UPA, the BJP’s only intervention was to make it worse, by inserting poison pills in it. Yesterday, it became obvious that the law was pushed by the Gandhi family even though its own party in the states was opposed to it. In effect, a law intended only to benefit the ruling dynasty politically was legislated without considering its consequences for national interest.

We clearly need a more honest legislation to replace the deleterious Rahul Act. The ideal solution would be to scrap the 2013 Act fully and rethink the issues fully from the ground up.

The reality is that the Act is simply anti-growth and not pro-farmer. The same Mint report quotes Arpita Mukherjee of the International Council for Research on International Economic Relations (ICRIER) as saying that the law would push up land costs to 40 percent of total infrastructure project costs. If land costs move from 5 percent to 40 percent, which infrastructure project will be viable? Rahul Gandhi’s Act clearly killed off any chances of growth, and when there is no-growth, there is no way any farmer would have benefited from selling his land at mind-boggling prices. Lack of growth would have depressed land prices.

Little wonder, Business Standard’s TN Ninan dubbed the Land Act as ‘UPA’s Worst Legacy’. He wrote: “Significant stretches of rural India now have land prices that are higher than those in any rural area of the United States, and in almost all of Europe barring countries like Holland. The land law stipulates that forcibly acquired land must be paid for at two to four times these market prices, in addition to other relief and rehabilitation costs. So the new law will make land acquisition next to impossible…”.

If something is next to impossible, one wonders how the Congress party ever thought its Land Act was pro-growth.

But the negative note struck at the revenue ministers’ meet with Gadkari was this: states did not seem to want any changes in the compensation levels provided in the law. If Ninan and Mukherjee of ICRIER are right, the compensation is as much a problem as the other provisions. If this is not tackled, how will the changes - though small improvements over the present law - be significantly better?

Clearly, scrapping the Rahul Gandhi law is needed. The only other way to do it is by making the changes on which there is a consensus as part of the central law, but allowing states to make their own laws on compensation. Under article 254(2) states can legislate their own laws for subjects in the concurrent list as long as the centre allows it.

What is wrong about the Land Act is clear: one cannot mandate a fair price for land acquisition that is so far ahead of the market price when market prices themselves have shot through the roof, and when, in addition to compensation, there are rehab and resettlement costs to pay for.

What any law should contain is a mix of the following: a small premium above market prices, full rehab and resettlement of the people affected, and a share of future value growth in the land (say 25 percent) once an infra project is implemented . The procedures for land acquisition need to be simplified so that land can be acquired within a reasonable time span of one year or less.

But this will require too much political investment by the NDA government, which has to grapple with several other issues simultaneously - an oncoming drought, a huge fiscal deficit, high inflation, and slowing growth.

Sad, but at least one sees light at the end of Rahul Gandhi’s tunnel of darkness.