Moneycontrol
Dec 14, 2012 06:31 PM IST | Source: CNBC-TV18

Expect cost of land acquisition to go up by 50%: M&M

After the Union Cabinet cleared the land acquisition bill on Thursday, CNBC-TV18 spoke to Arun Nanda, director of Mahindra & Mahindra for his views on the bill. Nanda expects the cost of land acquisition to go up by 50 percent.


After the Union Cabinet cleared the land acquisition bill on Thursday, CNBC-TV18 spoke to Arun Nanda, director of Mahindra & Mahindra for his views on the bill. Nanda expects the cost of land acquisition to go up by 50 percent.

“The cost of land acquisition will go up because if you are looking at an industrial project, land costs are typically between 20-25 percent of the project, they are not 100 percent,” Nanda adds.


Below is an edited transcript of Arun Nanda's interview on CNBC-TV18


Q: What are your initial thoughts on the land acquisition bill as the official bill is not yet on the PRS website?


A: This 80 percent worries me, because in our experience 10-15 percent people are not traceable at all because they have either migrated or the land records are not clear. On top of that, there are people who wait for an opportunity that we will play the decent role and then blackmail you into getting good prices. In a non-public private partnership (PPP) situation to get 80 percent consent from farmers, forget the cost part, is a cause of concern. 80 percent is a non-starter.

Q: Focusing on the cost part because there are initial brokerage reports estimating that now the cost of projects can rise by 50 odd percent. By what amount can the cost rise?
 
A: The cost of project will not go up by 50 percent. The cost of land acquisition will go up because if you are looking at an industrial project, land costs are typically between 20-25 percent of the project, they are not 100 percent. In a real estate situation, land cost is a primary cost. There are three elements of cost; the first one is to get a good deal for the farmers.


The farmers who held this land for generations need a good price but the other costs that are going to be added to it and since we don’t know the contents of the bill, there is a rehabilitation cost and there is a cost of people. The unfortunate part is that the benefits do not necessarily go to the farmers because the moment a project is announced, middleman land aggregators come in and do power of attorney or agreements to sell with the farmers and they are the ones who make money out of it. That is one thing the government should primarily try to get rid of because they are the ones who blackmail the industry to get extract prices.


The land cost will go up by probably about 50-60 percent or maybe 100 percent for the compensation to the farmers but the indirect costs, we have not been able to estimate which is the cost of rehabilitation and other things which is going to be significant.

Q: To what extent can the land cost in the overall plant whether it is power or any other infrastructure unit or an automobile plant go up? Rehabilitation is an old issue, the bill has only put it into law, but were you not doing it anyways?


A: Yes, we have been doing it but it’s been more of a social thing. With reference to your first question, I do not think there is one size that fits all; in a power project land will be a very significant portion because land required for a power project will be much larger. Generally in a manufacturing setup, land costs are around 10 percent because equipment is a larger portion of the cost. When you get into projects which require huge land, like power has huge storage areas for coal or steel plant, there the land costs will be much higher because of large area of land that is required.


_PAGEBREAK_

Q: A lot has been spoken about the rising costs of projects but once the bill passes the Parliamentary preceding does come into play. Do the positives out way the negatives or the negatives out way the positives on the whole for Land Acquisition Bill?


A: The intent and purpose is very good. We needed some legislation and systemize procedures for land acquisition both from an industry perspective and from the farmer’s perspective because the farmers in many cases were getting a raw deal as the middleman made money. But what is worrying me today is this figure which has been jacked up from 70 percent to 80 percent of consent because it is practically impossible to get it and that’s going to hold up your land acquisition and there are no discretionary powers there.

Q: If it is brought down to 70 percent, would you be okay with the bill that you mentioned?


A: Yes, I would recommend that it should be in 70 category. This is because there would be about 20-25 percent people whom we are neither approachable, or are sitting on the fence to make more money later. Seventy percent was a more realistic figure. We are getting too close to 100 and that’s not practical.

Q: The bill is still expected to go into Parliament; it’s just a cabinet approval. Till the time the bill actually comes into play, do you expect an expedited increase in possibly land acquisition or maybe a fierce negotiation in order to get the project approval so there is no retrospective applicability of the bill?


A: As far as the land buyers are concerned, they will try to do it but the locals are very smart, they will not. Why would they part with the land and lose their right for jobs and resettlement. So there would be a desire to do it but how much of it will happen, I do not know.

Q: Since this is such a contentious issue, its journey in Parliament would also be time consuming. Bills on which people have less disagreement are also stuck for political agreement, so this may take time. Meanwhile, do you think, we are going to delay an economic recovery unduly?


A: Yes, to a certain extent it will effect because the land owners will wait for the bill and get a better price and better consideration.

Q: Is it applicable only over 50 acres in urban areas and 100 acres in rural areas?


A: Yes, but that is very small. Any industry worth its size; you cannot put up an auto plant in less than 100 acres and it’s going to affect mostly infrastructure projects. It’s not going to affect small manufactures; it will affect large projects.

Q: What do you think about the cabinet committee on investments because there has been general consensus that it’s a coordination committee and much diluted version of the NIB?


A: I have not seen the terms of reference but what I am happy about is that there is a desire on the part of the government to move things forward. If there is a positive intent lot of things get done, not necessarily the actual working and the lines and the dots. This sends a positive signal that whether it’s the Prime Minister or the industry ministers or other concerned ministers, they want those projects worth little over 1 lakh crore which have been stuck for various approvals. They want to bring it together because today it is very difficult for an infrastructure project to get clearance, because of the multiplicity of ministries involved to get those approvals. This will help in the long run but I reiterate what I said, the positive is the intent of the government and showing that we mean business and things to happen and that is a good news.


Q: If that 80 percent figure is brought down to 70 percent, will you not have too much to complain about the bill?

A: As I said, cost will go up but that’s part of doing business.

X
Sections
Follow us on
Available On