Business Today

The new Land Act is far-reaching

Land availability is one of the core structural issues that impact almost all the infrastructure sectors.

Manish B. Agarwal        Last Updated: June 20, 2014  | 20:23 IST
The new Land Act is far-reaching
Land availability is one of the core structural issues that impact almost all the infrastructure sectors.

Manish B. Agarwal
Land availability is one of the core structural issues that impact almost all the infrastructure sectors. In the past, land acquisition for public purpose had been beset by several issues surrounding processes, procedures and compensation. Under the 120-year-old prevailing act, the definition of "public purpose" was never clearly defined. The new Act is far-reaching insofar as it attempts to address the social inequities in the existing framework of land acquisition.

First, it clearly defines public purpose employing unambiguous vocabulary. It recognises that ownership benefits and livelihood benefits are two different factors that need to be factored in a compensation framework. For the first time, securing a minimum "consent to sell" by landowners is recognised as an important step in the acquisition process.

The Act also mandates a detailed diligence exercise supported by a dedicated hierarchy of institutions, including local government. However, in its efforts to plug the loopholes in the existing law, the Act is so thoroughly prescriptive that its implementability, utility and costs for compliance have been called into question.

Some serious issues with the Act's implementation are:   

1) Fragmentation and challenges in establishing ownership. Unlike in several other countries, the state does not guarantee the unassailability of land titles, despite being an intermediary in the registration process. However, where the government acquires land under existing laws, the title becomes established de novo. This is arguably one of the most important reasons cited by investors for government-supported land acquisition for private projects. The new Act has prescribed a very high threshold for securing a "minimum consent to sell" (between 70 and 80 per cent for projects with private investment) before the government can get involved in this process.

2) A new variable "market value of the land": This is defined to be the higher of the reckoner rates, average prices of recent transactions in the vicinity and the compensation agreed with the landowners as part of the "consent process". The consequent steep increase in the cost of land has been one of the most widely reported concerns from the investors. However, there is a lack of definition of the terms "recent" and "vicinity". Speculative trading by vested interests with very small parcels of land can move prices by a large amount in either direction. Observed prices are also determined by the land use and development control restrictions. Finally, the very process of securing consent from a significant majority of landholders could effectively kick-start a speculative bubble, which can increase the asset prices to unreasonably high values.

3) The importance of grassroots institutions like the Gram Sabha, Panchayats and the Collector in a consultative decision-making process. While this can bring greater credibility and reduce timelines for reaching consensus, the institutional bandwidth needed from central and state entities to govern the Rehabilitation and Resettlement (R&R) process seems onerous. However, the Act fails to establish the powers of these project level R&R committees and there are unclear penal provisions against abuse of official power during land acquisition.

4) The R&R package is applicable for all private acquisitions of land over 100 acres in rural areas, and 50 acres in urban areas. Most developers lack expertise in the area of rehabilitation or skill training, which are mandatory under the R&R process. For example, this could lead to a situation where private developers acquire land parcels that are in multiple lots, each under the prescribed threshold for R&R compensation through other entities. There may be several cases where a 50-acre plot displaces more number of people than a 100-acre plot.

There are several other provisions of the Act that need to be detailed out further to understand their implications. For example, it has been stipulated that all infrastructure projects falling under the PPP route, should secure a minimum consent to sell of at least 70 per cent. However, one can think of a scenario where the government acquires land for development of capital projects, and achieves substantial progress in development, before co-opting a private investor. Such a scenario may happen several decades after the land acquisition. In such cases, this clause can be circumvented in practice.

The present Act is retrospectively applicable for areas where allocation has been made, but no development has been carried out for five years. This will give an impetus to present projects which have completed land acquisition but haven't begun development yet. Private players sitting on large tracts of land will now be pushed to develop the land with greater urgency or risk losing it to government land bank.

In order for the Act to genuinely strike a good balance, it needs process, administrative and bureaucratic support from several external agencies. There is a need for extensive institutional reform, downstream reforms to allied laws, greater co-ordination across federal agencies, and investor-friendly rules and regulations in downstream implementation of the Act. Unless these fall in place very quickly, enactment of the Act can become a Pyrrhic victory for the government leading to long-term damage for the economy.

(The author is Leader Capital Project & Infrastructure, PwC India)

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