India’s bitter land battles set to roll on

November 5, 2013 7:57 am

India’s bitter land battles set to roll on

By Amy Kazmin in Meerut, India

India’s new land law was designed to resolve one of the most vexing problems of its sputtering economy: bitter stand-offs over state acquisition of agricultural land for industry, infrastructure and urban development. But the ruling Congress party’s attempt to ensure fair treatment for farmers – and protect them as India industrialises and urbanises – has left landowners awaiting windfall profits, companies fearing projects will be unaffordable, and experts warning of an abdication of state powers to take land for economically desirable projects.“This whole process of acquisition assumes the farmer and landowner is a naive chap . . . and his rights have to be protected by this long-drawn out procedure,” says economist Rajiv Kumar, former head of the Federation of Indian Chambers of Commerce and Industry. “The process is so full of red tape, bureaucratese and problems it will get tied up in knots.”

Bitter land battles have been one of the biggest obstacles to India’s industrial growth in recent years, with many projects – such as plans by South Korea’s POSCO for a $12bn steel plant in Orissa – delayed for years, and some eventually abandoned.

On paper, India’s previous 1894 land acquisition law, a legacy of British colonial rule, gave the state unchecked powers to take private land for projects deemed of public interest, including private investments. Private companies have mostly relied on state procured land for big projects.

But these powers were widely abused, with farmers railroaded into relinquishing land at throwaway prices usually to see the land resold afterwards for far more, with middlemen reaping windfall profits. This exploitation, and lack of alternative livelihoods, led to fierce resistance.

“The absence of a transparent equitable process of land acquisition clearly hurt,” said Subir Gokarn, director of research at Brookings India. “Correcting that was an important objective in terms of basic fairness.”

Jairam Ramesh, the rural development minister in the Congress party government, argues the new rules – which take effect in 2014 – offer a fair, transparent process that protects the interests of land sellers and land seekers, thus facilitating deals. But sceptical business groups believe the new law goes too far to protect property owners’ interests, despite India’s urgent need for better infrastructure and job-generating industry.

“It is likely that land acquisition itself will end in all of urban, and most of rural India,” Sanjoy Chakravorty, author of The Price of Land, a book about India’s land conflicts, wrote in a recent newspaper column.

Under the new law, state authorities can only purchase land for private companies to use for projects if they obtain the consent of 70 to 80 per cent of affected landowners.

“Under no circumstances should forcible land acquisition take place,” Mr Ramesh, who wrote the law, told business groups recently. “I’m a great believer in faster industrialisation, but you cannot have industrialisation and urbanisation at gunpoint.”

The state will also be required to pay twice the prevailing market price for any land it acquires in urban areas, and four times the prevailing price for land in rural areas, which Jones Lang LaSalle, the global property consultancy, says will sharply push up land costs for infrastructure.

“Many private sector infrastructure projects might eventually be rendered unviable,” it said.

While these rules only apply to state purchases of land – private companies can still buy land directly on the market from willing sellers – analysts say their costs too will rise.

With a population density of 325 people per square kilometre according to the latest census, India’s land is already some of the most expensive in the world, with prices having increased nearly fivefold over the last decade, according to Mr Chakravorty.

Real estate prices in Mumbai’s most exclusive neighbourhoods are as high as Tokyo or New York, while land prices in smaller cities far exceed prices in comparably-sized US cities.

However, Mr Ramesh insists that infrastructure and industrial projects are unlikely to be derailed by the higher prices of land, which he says accounts for just 5 per cent of the total cost of large projects. “The financial costs of acquisition might go up, but the social costs will go down,” he said. “I think it’s worth it.”

But costs aren’t companies’ only worry. Many argue the new procedures – including requirement for a social impact report for every deal – are too cumbersome, give too much discretion to local officials, and will lead to years of delay.

The new law also grants new rights to non-property owners, with eventual land users required to resettle and rehabilitate anyone affected by the sale – not just a land parcel’s former owners, but also their tenants, farm workers, and their families.

“As soon as a piece of land is up for acquisition, you will have a spate of people being down as dependent on that land for livelihoods,” said Mr Kumar, now a fellow at New Delhi’s Centre for Policy Research. “Who will check?”

Many believe businesses could live with higher land prices if the acquisition process was quick and easy. Instead, companies fear they will have been left with a law that will lead to higher costs, with even greater uncertainty.

“Large projects are very sensitive to time,” says Mr Gokarn. “If it takes more time, and becomes more unpredictable, it could have an impact. You needed a legislative process that would protect people from being exploited, but whether this was the right way of doing it remains to be seen.”

Additional reporting by Jyotsna Singh