Why exempt only PPP? UPA's Land Act needs to be junked wholesale and reworked

The NDA government is said to be considering some tweaks to the Land Acquisition Act - a.k.a. the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 - to make it easier for public-private partnership (PPP) projects to buy land. The proposal is to exempt PPPs from having to seek the consent of 70 percent of the landowners affected by the proposed land acquisition and do away with the mandatory social impact assessment (SIA), reports Business Standard.

These two exemptions will make land acquisitions faster for PPPs at least. Whether they will ever be more viable, given that you still have to pay twice the market prices for land in urban and four times in rural areas, is another question.

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The proposed changes are positive, and represent possibly the smallest acceptable political change possible, given that the NDA does not have a majority in the Rajya Sabha. In fact, the change is too small to really undo the damage caused by this anti-growth land mine planted by the UPA in its dying months of rule.

If Narendra Modi wants to rejuvenate the investment cycle, he should invest high political capital to either repeal the Act, or make very big changes in it so as to give growth a big push.

PPPs, never very successful in India, are not going to take off vertically even after this change, because the law is rotten through and through. The Land Acquisition Act is meant to help the poor, but what it will end up doing is encourage more corruption and hanky-panky as desperate investors seek to get around the law.

Consider the speedbreakers to investment embedded in the law.

First, land cannot be acquired for any private project unless they fall in the following categories: infrastructure projects, industrial corridors, mining, investment and manufacturing zones, sports, healthcare, transport projects, and space programme.

Second, even for private projects that pass muster from the above definitional angle, they will need the nod from 80 percent of landowners. It is only the PPPs, which need 70 percent consent, who are getting a reprieve. If even 70 percent is tough, why is 80 percent consent for private projects not considered a bad idea too.

Third, land can be acquired only at two times market prices in urban areas and four times market rates in rural areas. This means acquirers will try hard to ensure that the base price from which the multiple is worked out is artificially low to keep land costs reasonable.

Fourth, as if this high price is not enough, those losing land will have to get a house to stay, a one-time allowance, or a job or annual payments of Rs 2,000 per month for 20 years. And this payment will be adjusted for inflation.

Fifth, approvals and clearances will be needed at all stages from the state or various committees or bureaucrats. The social impact assessment of the project will be done by a committee, the state government will evaluate this, and all sales of land will need a final clearance from the state.

As we have noted before, this kind of law is tailor-made for corruption and illegal gratification. Remember the licence-permit-quota raj? The entire state machinery was intended to create opportunities for rent-seeking behaviour by babus, netas and crony capitalists by putting obstacles in the way of those who wanted to set up businesses and create jobs.

The Land Acquisition Act will replicate the licence-permit raj in the most fundamental thing required for any project - land, which is always in short supply. The unintended (or maybe intended) consequences are frightening.

Need approvals from 80 percent of land-owners? Private parties will bring in thugs and goondas to ensure that this happens. Every village will now develop political thekedars who will route money to the right hands among politicians.

Need a positive social impact report from the committee set up from the purpose? A few crores of bribe money will be helpful. Every corrupt babu will want to be on such committees.

Need a final nod from the state government? No prizes for guessing who will benefit the most.

Need to change land use from agriculture to infrastructure? More grease money will be required.

Will the bill ensure transparency and fair payments for farmers? No, it will make land deals less transparent. Fair payments will be few and far between. Some farmers are bound to benefit, but the chances are the richer ones will take over poor farmers’ lands at throwaway prices (they are not covered by the law if they buy small parcels for agricultural use) before the land acquisition process under the new law actually begins. It is the big farmer, with surplus cash, and corrupt politicians, who will provide political cover for such loot, who will reap windfalls by getting four times market prices, which will already be bloated by earlier purchases from smaller farmers.

Will any project be at all viable after the Act? All projects - whether in urban areas or rural - will become enormously expensive and some will surely become unviable. With Indian banks already staggering under enormous bad loans, why would they want to fund expensive land purchases and worsen their problems?

Will the major reason for the current slowdown - failure to clear projects - vanish after the Land Act ensures “fair prices” to landowners and “transparency” in dealings? Businessmen are likely to shy away further from new projects, at least in the short run. As for transparency, what transparency can there be when every land deal will have to negotiate shoals of committees?

Will real estate prices come down, despite the fact that no one is buying property in overpriced urban areas? Fat chance. In most places, land accounts for a major part of property prices. So when the Act seeks to double or quadruple costs, how will property prices come down? The next generation is doomed to live forever in rented houses - and rents will rise since new property is unaffordable. We will all be paying rents to benami property holders.

The Bill is so flawed that even members of Sonia Gandhi’s former National Advisory Council have not bought its intent. In a report last year, Mint quoted NC Saxena, a former NAC member, as decrying the law as being against the interests of farmers and industry. “It is pro-civil society and pro-bureaucracy because of the number of committees that will be needed to be set up under the Bill. It doesn’t provide for land acquisition within a reasonable time frame, which means it will hurt farmers and the industry.”

The Land Acquisition Act, even granting noble intent, is a land mine placed on the route to growth and economic revival. It needs to be thought of afresh.

(Read more on why the Land Act is a disaster here and here )