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'Modi government has to work harder for infrastructure development'

Anuj Nangpal, Managing Director, Investor Services, DTZ tells Sarika Malhotra that the new Land Acquisition Act would lead to enhanced project costs.

twitter-logo Sarika Malhotra        Last Updated: June 3, 2014  | 14:00 IST
Anuj Nangpal, Managing Director, Investor Services, DTZ
Anuj Nangpal, Managing Director, Investor Services, DTZ

Anuj Nangpal, Managing Director, Investor Services, DTZ
Anuj Nangpal, Managing Director, Investor Services, DTZ
Anuj Nangpal, Managing Director, Investor Services, DTZ tells Sarika Malhotra that the new Land Acquisition Act would lead to enhanced project costs. This might be a severe setback for infrastructure development and urbanisation in India. Edited excerpts from an interview.

Q. How do you view the new land acquisition Act that that was passed last year?

A. The Land Acquisition Bill aims to provide a central legislation for families affected by the land acquisition. The legal complications and grievances related to land acquisition are expected to subside thereby streamlining the acquisition process. The higher compensation under settlement would increase the land cost and enhance the financial burden on the developers. Infrastructure in India might suffer as the enhanced compensation clause and the Rehabilitation & Resettlement (R&R) clause will have a direct cost and time implication. Private investors and end users in real estate are likely to suffer due to higher property costs across the country.

Q. What impact will it have on private developers?

A. The enhanced compensation clause and the R&R clause will have a direct cost implication on the projects initiated. This increase in land-related costs will increase the financial burden on the private developers, which will be passed on to the investors and end users looking for residential or commercial investment. Large infrastructure projects under Public Private Partnership (PPP) with private investment would also suffer in the long run. However, this remains a fact that most of the residential, commercial and retail projects which occupy smaller land areas will not be affected as the provisions of the Bill are applicable on cases of land acquisition of 50 acres in urban areas or 100 acres in rural areas. Private developers will have to work efficiently towards timely delivery of projects as the bill suggests, land should be returned to original owner if not used in five years for the purpose for which it is acquired, subject to the refund of one-fourth of the compensation amount with interest from the date of payment.

Q. In its manifesto, Bharatiya Janta Party mentioned that it will create 100 new cities and a new rail network which will connect the hinterland to ports for easier and cost effective communication, none of which will be possible without acquiring land. How do you see the new Act affecting urbanisation and development process?

A. The main aim of the government would be to ensure and adopt humane, participatory, informed, consultative and transparent process for land acquisition for industrialisation and urbanization with the least disturbance to the owners of the land and other affected families and to provide just and fair compensation to the affected families. For developing new "Smart" cities, the government would need huge patches of land. Most of these cities are expected to be developed in public private partnership (PPP) mode and acquisition of land for PPP projects needs consent and approval of 70 per cent of the landowners. Getting consent from such a huge majority might be difficult but not impossible, if the fair compensation policy is in order. However, the current government seems sensible enough to understand the prime importance of land acquisition in a developing economy like India where infrastructure-related projects and urbanisation are of paramount importance. Hence, coping with the enhanced project costs resulting from the new Bill might be a severe setback for infrastructurel development and urbanization attempts. Further, under set guidelines, the linear approved projects under railways, highways, road and irrigation are exempted from restrictions under land acquisition process. Hence, the current bill would help the ruling government in mounting well planned infrastructure projects in the country.

Q. The big question for Modi is how will he manage this big an infrastructure change, and is the next five years enough to make this happen? What will be his biggest challenge to work around this bill?  

A. The 'Modi' government that plans for huge infrastructure development in the country will have to work harder and more efficiently to achieve its objectives. The first five years of the ruling government would be very crucial but not enough to foresee an effective change. For this very reason, even before the swearing in of the new PM, Modi has asked the entire bureaucracy to identify "low-hanging" infrastructure that will be crucial and can easily be turned around in the next two-three years. This will only spell good for the citizen of the country, it will look good on his report card. However, from the point of view of real estate acquisition for such projects, he faces a few challenges which include a lengthy and costly process under the new Act, making it difficult for private companies who want large patches of land for establishing their factories and manufacturing units in different parts of the country.

Provisions like "Social Impact Assessment", where gram sabhas will be involved might delay projects. Having such challenging provisions might involve lengthy litigations which will in turn delay protects and increase costs. The government would need huge patches of land for developing "Smart" cities. Most of these cities are expected to be developed under PPP mode and acquisition of land for PPP projects needs consent and approval of 70 per cent of the land owners. Getting consent from such a huge majority might be difficult in many cases, hence might led to abandoning of such projects which is expected to benefit a large number of people. The government would face challenges in controlling the high cost of the entire project, as the new Act provides for providing a compensation amount of four times the current market value in rural areas and twice the market price in urban areas along with rehabilitation and resettlement. In overall, the group housing might not be affordable for a common man as the overall cost of the project will increase due to increased cost of land. The inequality in terms of bargaining power between large-scale corporations and small farmers and other marginalizsd groups increases the likelihood of unfair agreements. Contracts tend to be signed in favour of the party negotiating from a greater position of strength. That is why government is required to bridge the gap and bring balance to this relationship. The new Act also requires the consent of 80 per cent of the land owners for acquiring land for private purposes. Manufacturing units need large tracts of land and acquiring such large amount of land might be a problem. In addition to those losing land, the Bill provides compensation to those who are dependent on the land being acquired for their livelihood. If land is purchased then there are no benefits for livelihood losers who are usually far greater in number than the land owners. This Bill ensures that they are taken care of and not simply displaced. In case the acquired land remains unutilized after acquisition, the new Bill empowers states to return the land either to the owner or to the State Land Bank. To address historical injustice the Bill applies retrospectively to cases where no land acquisition award has been made. Also in cases where the land was acquired five years ago but no compensation has been paid or no possession has taken place then the land acquisition process will be started afresh in accordance with the provisions of this act. A legitimate need for acquisition by the state itself (to develop public infrastructure such as roads, schools and hospitals) can be undermined and stalled by groups with vested interests. If there is no sovereign power to compel these groups, a single individual or group of individuals can hold a process hostage merely by refusing to part with land.

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