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Aug 29, 2013, 10.33 PM IST | Source: CNBC-TV18

Land Bill: India Inc wary of rising costs; but welcomes aim

Industry heads believe that the Land Acquisition will ensure smooth procedure and lesser delays in getting land for development, but will also spike costs of products by almost 20-25 percent.

As voting for the Land Acquisition, Rehabilitation and Resettlement Bill, 2011 gets underway in the Lok Sabha, India Inc expresses mixed reactions to the proposal. Some industrialists feel that this will throttle industrial growth in the country, expressing reservations against crucial clauses in the document, yet some others also welcomed the overall intentions of the Bill. While they  foresee lesser delays in acquiring land for development, project costs may also see a surge going forward. 

Also read: Here is why India Inc is miffed by Land Acquisition Bill

Vinayak Chatterjee, chairman of Feedback Infrastructure believes that the Bill is a much needed reform and needs to be looked from a broader perspective. However, some implementation aspects of it will require restructuring, he told CNBC-TV18.

Venugopal Dhoot of Videocon Industries is also positive about the Bill and its retrospective effect as stalled projects could see a silver lining if it is passed. The Bill is also good for farmers and landowners as it largely favours them, while the industry should be happy on lesser hurdles to projects.

The Bill includes a clause where the compensation to the landowner is four times the market value in rural areas and double in urban areas. Also, consent from 80 percent of displaced people will be required to acquire a chunk of land.

However, Niranjan Hiranandani, managing director of Hiranandani Group of Companies strongly criticised the Bill in its current form. He says that cost of affordable housing will see a spike of 20-25 percent. The state government will also have problems as land acquisition costs will shoot up. As a result, a lot of industrialists will look to invest overseas, Hiranandani affirms.

Ajit Mittal, group ED of Indiabulls group echoed Hiranandani’s views on rising housing costs. He felt that not only will cost of housing in India will substantially go up, but industrial projects will become financially unviable in some cases. He is also worried about implementation of the resettlement and the rehabilitation (R&R) clause, which calls for provisioning for land, housing, employment and annuities above a certain threshold of acquisition.

Below is the edited transcript of their interviews on CNBC-TV18.

Q: What do you think of Land Acquisition Bill in terms of project costs, in terms of acquisition by industry, because no government acquisition will now take place for private projects and the compensation is much higher than what the industry is used to paying?

Chatterjee: It is extremely popular for industry to criticise the Land Acquisition Bill because there are certain clauses that will impact corporate India, make life a little tougher. But we have to stand back from the detail and look at the larger picture that this Land Acquisition Bill was needed in the first place.

The 1894 Punjab Land Acquisition Act has been so thoroughly misused by state governments and often incurring capitalists in cahoots with government that it has made a mockery of people's right to decide whether to sell land or not. So, this new Land Acquisition Act was required and various provisions are pretty logical.

The fact that for infrastructure and for public purposes you can go ahead without asking 80 percent of the people, for public-private partnership (PPP) projects you have to ask 70 percent and for the balance private acquisitions you need 80 percent. The compensation scale is not illogical or priced bad for urban areas and four times that in a sliding scale for urban.

The fact that there is an Resettlement and Rehabilitation (R&R) package is not illogical. If the industry were to take a broader view as to what is good for the country, what is good for all stakeholders then I do not oppose the bill. There are certain clauses and elements in the bill that would certainly need reworking, but it is not a sufficient import to actually reject the bill wholesale.

I welcome the Land Acquisition Bill though it has a higher cost for corporate India. An informal calculation that I have done for a very specific auto project shows that before the Land Acquisition Bill the cost of land acquisition would be 3-4 percent of project cost and after Land Acquisition Bill it will be 8 or 9 percent of project cost.

This incremental cost of land for a specifically scarce and contentious resource is something that over the life of a manufacturing or an infrastructure project and could go from 30 years to 100 years is easily amortisable across the life of the project.

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