You are here:

Balancing act for India in overhaul of archaic land law

MUMBAI (Reuters) - More than a century after it was drawn up by British colonial rulers, India's land acquisition law is finally set for a revamp that promises to breathe life into scores of frozen industrial and infrastructure projects and help lift the sagging economy.

That's the optimistic scenario.

The reality is that the new law will make the cost of land much higher for businesses and is unlikely to put a stop to protests by millions of people determined to defend their livelihoods or get fair compensation for losing their land.

The new bill will govern land acquisition by the government for itself and by private firms to provide public services. This will embrace a wide range of projects in sectors from power and telecommunications to transport and education.

Among the major projects which have stalled awaiting the new legislation are 12-million-tonne steel plants planned by Posco (005490.KS) and ArcelorMittal (ISPA.AS) and a six-million-tonne steel plant of Tata Steel (TISC.NS) in Odisha, as well as Coal India's (COAL.NS) mine expansion in Chattisgarh.

More than 80 highway projects are also running behind schedule.

Despite the promise of greater transparency and better regulation, corporate India is worried about cost.

The new law may force them to pay four times the market price for land in rural areas and twice the market price in urban areas, and give displaced people homes, jobs, monthly stipends and even a share of their profits in some cases.

Even if companies enter into private negotiations for land, they will be required to rehabilitate people if they acquire over 100 acres of rural land or 50 acres in urban areas.

The Confederation of Indian Industry lobby group estimates that this will increase land acquisition costs by 3-3.5 times, affecting the viability of projects across the board.

Companies are bracing for increased costs and may tweak project plans, but they're unlikely to ditch projects altogether, having invested years negotiating with state governments and landowners.

ArcelorMittal's boss Lakshmi Mittal said recently his India projects were unlikely to see light for several years because of unresolved policy issues. But a spokeswoman said they were continuing negotiations despite likely cost increases.

For a graphic on land utilisation click link.reuters.com/dyd32t

For a graphic on India's delayed project costs click link.reuters.com/baf32t

The government has tried twice to amend the 118-year-old legislation, but until now it has failed to balance demands for an end to the regulatory minefield that confronts developers with a popular clamour to protect the poor.

Even as the government prepared last week to introduce its latest version of the Land Acquisition act in parliament, social activists gathered in New Delhi to protest against a law their leaders said falls "far too short of democratic expectation".

"The redrafted bill ... though accepting certain provisions as suggested by social movements, is pro-market and pro-investment and will only further the land conflict," said Medha Patkar, who led a high-profile campaign over two decades against the construction of a huge dam to prevent thousands of tribal people being evicted from their homeland.

Safeguarding farmland against the creep of industrialisation to ensure food security is a priority for the left-leaning government led by Sonia Gandhi's Congress party, which relies heavily on rural voters for support.

Back in 2004, when it came to power, Congress pledged to overhaul a law whose wide definition of "public use" means people can be turfed without much ado off their land, and which omitted to lay down rules for compensation and rehabilitation.

The government now appears confident that the bill - whose final contours have yet to be made public - will at last be passed despite the fierce partisanship of the main opposition party, which has made a habit of blocking reform.

"No party would commit political hara-kiri by opposing the bill as every party is committed to the farmers' cause," said a senior official at the Rural Development Ministry who asked not to be named.

AIRPORT DELAY

The trick that the government must pull off with the new legislation, however, is mollifying both the social activists and India Inc.

Over 200 government projects and several industrial ones have stalled due to land-use snags, contributing to the country's sharpest economic slowdown in a decade and stifling much-needed growth in employment.

Among the many frustrations for developers are a lack of property deeds, which leads to prolonged legal battles, the difficulty of bringing together scattered smallholdings of land and the cost of servicing project debt as they wait for acquisition clearances.

"Some politicians are clearly posturing on this issue to get political gain but there is a clear demand from industrial groups, infrastructure developers etc to spell out the processes of land acquisition and amend the law," said Seema Desai, an analyst at political risk research consultant Eurasia.

Take the grand plan for a new international airport near Mumbai, which was envisaged more than a decade ago to relieve pressure on the financial capital's existing airport.

A blue signboard overlooking a vast expanse of waterlogged land with hillocks to one side is all there is to show for the project so far. This is because although environmental clearance was granted two years ago, villagers who own 24 percent of the land are holding out for a higher compensation package.

Mahindra Patil, headman of a village that sits on the airport site, said his people want developed land equivalent to 35 percent of the area they are losing and 25 million rupees per acre.

"If they don't agree, the airport will not come up here," said Patil from his cramped office on the edge of lush green paddy fields. "We have been doing farming and fishing here for ages. This is our wealth, how much more will we sacrifice? We will not compromise beyond this."

Land troubles have also plagued special export-oriented zones, which were intended to hasten India's industrialisation. Companies including Reliance Industries (RELI.NS), Mahindra & Mahindra (MAHM.NS), Indiabulls (INRL.NS) and Videocon (VEDI.NS) have scrapped plans because land could not be acquired.

Aditi Nayar, a senior economist at rating agency ICRA, said the new land bill is urgently needed to ensure that businesses know at an early stage about the viability of proposed projects.

"Increasing the share of manufacturing to 25 pct of GDP under the National Manufacturing Policy would be difficult to achieve without significant land being acquired," she said.

The government dismisses industry's fears of higher costs.

"The land acquisition will not cost more than 2-3 percent of the total project cost, while saving a substantial amount spent over delays and legal battles," the Rural Development Ministry official said.

In what will be a huge relief to existing project owners, a proposal to apply the new acquisition regulations retrospectively is likely to be ditched by the government.

The bill is also expected to propose the establishment of a quasi-judicial body to settle disputes over compensation within six months, doing away with the practice of going to lower civil courts where cases routinely drag on for years.

But social activists believe that the new law, despite its provisions to make compensation fairer, will build in a bias towards land developers at the expense of small landholders.

"The current bill legitimises land acquisition of most kinds and by anyone even for private profit, and is only trying to play with language of transparency and fair compensation," the Sangharsh (struggle) protest group said in a statement.

(Editing by John Chalmers and Jeremy Laurence)