How feasible and fair is the new Land Acquisition Bill?

The new Land Acquisition and Rehabilitation and Resettlement Bill 2011 may change the lye of the land as far as the rural-urban equation is concerned, and also the dispensation of equity in independent India. Below are the key pointers of the bill:

1. The act will apply when the government acquires land for its own purpose or to transfer it to private companies for public purposes

2. The act will also apply when private companies acquire land more than 100 acres in rural areas and more than 50 acres in urban areas

3. The act will be enforced when a private company asks the government for partial land acquisition for a public purpose

4. Land owners will have to be paid four times the market value of the land in rural areas and twice the market value in urban areas

5. The affected land-owning family will have to be paid Rs 3,000 per family for 12 months and Rs 2,000 per month per family for 20 years as annuity

6. Similar allowances will also be have to be paid for landless labour living off the land acquired

6. For the next ten years, 20% of the appreciated value of the land will have to be shared with the landowners every time the land is sold or transferred

7. The government shall also provide infrastructure facilities in the resettlement area

The latest episode of Indianomics on CNBC-TV18 gets on board an eminent panel to discuss whether the act is fair, feasible and above all, balanced. The guests include: NC Saxena, member of the National Advisory Council, Adi Godrej, chairman, Godrej Group, Captain Gopinath, formerly of Deccan Airlines, but more importantly a former farmer, and Sanjay Ubale, head of Tata Realty and a former IAS officer of 25 years service in the Maharashtra Government.

Below is the edited transcript of the discussion. Also watch the accompanying videos.

Q: Would you say that this is a fair compensation - four times the land value in rural areas and twice in urban areas. You think at least equity part is handled?

Saxena: First of all, it is not market value. It is the value which is shown in the registers of the state government or the stamp value which is fixed by the state government. Secondly, four times the stamp or registered value is the minimum; it could be ten times, 20 times or even 100 times. Thirdly, it is not for all cases of land purchased by the industry or builder from farmers; it is only in those cases where these people who require land come to government for help. There is no upper or lower limit or no fixation of compensation when anyone wants to buy land directly from the farmers.

In fact, the whole idea of keeping high price for as compensation is to discourage builders and industry coming to government for small pieces of land and therefore, we want the market to be operative. They should go to the farmers and buy land at market price, 1.5 times market price, whatever is convenient to them. It is between the two buying and selling parties, government has nothing to do with it.

Q: What is your sense, is the act on the face of it, a fair deal for a person who has lost land?

Godrej: I suppose it is, and since earlier it was not properly defined, there was a lot of protest etc. One thing we must understand is that with this new law, the cost of acquisition of land will go up very considerably. Whilst it might be fair to the person who loses the land, it will add to cost of industrialization.

In industrialization, the extra cost may be reasonably absorbable because earlier, land cost use to be around 3-5% of a project cost. Now it may go up to 10-15% of a project cost.

However, for housing, this will lead to tremendous increases in cost. Typically, earlier, acquired land use to cost around 30-40% of a housing project's cost and this might jump up tremendously now. The only way it can be absorbed is by increasing the final prices of the housing. So, affordable and middle level housing cost, to my mind, will go up very considerably.

Q: I don't know if in housing we are really going to get into acquisition of 100 acres of land in rural areas and 50 acres....

Godrej: ...interrupts....to build townships, it has to be at least 100 acres.

Q: What about other projects? Do you think that this is going to seriously impact the cost of industrialization? What are your key takeaways as a person who now heads Tata Realty and has to see a lot of projects going ahead?

Ubale: In large housing projects, the cost of land is definitely going to go up because particularly in the semi-urban areas or in urban areas, the compensation amounts could be very large. In fact, in the fringe areas, the land values in any case are very high. So therefore, the land prices are going to be a very substantial part of the overall development. In any case if you look at a place like Mumbai, almost about 60-70% of the total cost of Floor Space Index (FSIs) including the construction cost is that of land. So in the fringe areas also, you will find there is substantial increase.

Q: But there you are not looking at 150 acres?

Ubale: No, but as Mr. Godrej said, if at all you want to have planned developments then it is possible only if you are able to aggregate large chunks of land. If at all anybody wants to develop large townships, he will have to go to the government, get the proposal approved and pay a very high compensation. So I don't think there is going to be an incentive for the private developers to acquire lands of such areas.

But essentially, what might happen now is that you might actually have smaller developments, which means that you will have maybe less than 50 acres or less than 100 acres development, which will defeat the purpose of planned urbanization.

Nonetheless, in other areas also there could be a significant impact. One is airport development, for example. Airports are typically closer to the cities. Let's take a look at the Navi Mumbai airport. Essentially, it's in a very highly urbanizable area. Now suddenly, the land compensation there is going to be doubled. So the cost of the project itself will be phenomenally high. I don't know whether the governments will be in a position to bear that cost and whether the private operators would be able to pass on that cost to the consumers. There could be some projects in the urban areas like the Metro rail projects can get affected.

But I think in the rural areas, it might not make too much of an impact. In the highway projects, for example, it's not likely to make too much of an impact. However, there is a small impact that's likely to happen, not because of the land compensation per se, but what the act now says is that any acquisition proposal that is at the final stages, that means, either the award has not been declared or the land has not been taken possession of, then, you have to start de-novo. Now you could have a situation where the highway project is currently going on and suddenly, the land acquisition becomes void. So you will have maybe a two or three year delay in the project execution that will have a significant impact on the economics of that project.

Q: But this is still in the bill stage, it's not yet become an act. So you think even now projects that are underway could het hampered?

Ubale: Not now. It's only when the bill actually becomes an act. On the day the bill becomes an act, all the land acquisition proceedings which have not been finished, in the sense that the lands have not been taken possession of, will have to be started de-novo, which means that you will be going back at least about 1.5 to two years. Not only that, the others who actually got compensation based on the earlier act will also now start agitating, saying that why are we being short-changed in a way! So that could create some kind of a problem in executing these projects.