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Choking business: New law sets land prices on fire

Highly restrictive conditions, as specified in the land acquisition legislation that the UPA government enacted last year, are proving to be major barriers for industry to buy land.

business Updated: Jul 01, 2014 14:14 IST
HT Correspondent
HT Correspondent
Hindustan Times

Highly restrictive conditions, as specified in the land acquisition legislation that the UPA government enacted last year, are proving to be major barriers for industry to buy land. Costs have jumped more than three times according to the formula stipulated in the new law.

The new law sets a "multiplier"— of two to four times, depending upon the distance of project from urban area, and a 100% solatium (compensation for injured feelings) on top of the land’s market value.

Assuming that 80% of land acquired is private and agricultural, the average per acre cost will go up to `84.39 lakh under the new Act from Rs 25.81 lakh according to the earlier law.

“Industry also views the new land acquisition law as increasing the procedural complexities in acquiring land for private projects,” investment bank Morgan Stanley said in a recent research report.

Experts said that the government would have to urgently re-assess the efficacy of the new land acquisition law, especially with respect to the procedural requirements.

Time and cost overruns have been a major bane for India’s infrastructure projects. The government’s own data shows how inadequate capital, environmental concerns, law and order issues, equipment shortages, bad weather and delays in procedural clearances have resulted in major slippages in large projects.

As on December 2012 — the latest for which data is available — there were 92 projects, worth more than Rs 1,000 crore that were behind schedule aggregating a total investment of more than Rs 7,00,000 crore.

“This is the single most important barrier to long-term progress that the next government would inherit from the UPA. It rightly tried to correct the injustice that had been happening to the farmers under the old, 1894 Act but the solution has turned worse than the problem,” eminent economist and Columbia University professor Arvind Panagariya had told HT in a recent interview.

The right to fair compensation, resettlement, rehabilitation and transparency in land acquisition act, which was enacted last year, has made it compulsory for securing consent of 80% of affected families for land acquisition for private sector and 70% of affected families for Public Private Partnership Projects under ‘Public Purpose’.

However, industry leaders said these conditions are highly restrictive, which has made it nearly impossible for companies to acquire land to set up factories.

“The condition of consent for 80% families is prohibitively high, as also the condition for end-use,” an industry leader said.

“India needs huge amount of capital to meet its growth and development objectives. The government policies, regulations and actions must clearly reflect that India must signal it welcomes and will be fair to capital,” said Sidharth Birla, president, FICCI.

“Reforms should be targeted to focus upon removing key impediments in setting up businesses, getting fast track clearances, and removing infrastructural bottlenecks,” said Chandrajit Banerjee, director general, CII.

“Several supply bottlenecks — including the approval process for environmental impact, mining rights and land acquisition — have hampered the pace of national investment growth. We believe that introducing a transparent mechanism to allocate these natural resources and streamline the approval process can address these structural bottleneck,” Morgan Stanley’s Ridham Desai said in a recent research report.

First Published: Jul 01, 2014 01:23 IST