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Aug 29, 2013, 10.40 PM IST | Source: Reuters

Lok Sabha Passes Land Acquisition Bill, 2011

The government says the Land Acquisition Bill, which will replace a muddled law dating back to the 19th century, will help speed up industrial investment by making the rules clearer.

The Lok Sabha approved land reforms on Thursday that boost farmers' rights but are opposed by other businesses who say the new law will thwart efforts to revive the floundering economy.

The government says the bill, which will replace a muddled law dating back to the 19th century, will help speed up industrial investment by making the rules clearer.

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

With the rupee's value tumbling along with other vulnerable emerging market currencies, India is struggling to finance its current account deficit and its leaders are desperate to promote economic growth.

But many are sceptical about the land bill, which is seen as a vote winner for the governing United Progressive Alliance (UPA) coalition because it will give farmers up to four times the market rate for land bought for industry and infrastructure.

"We believe that the land bill strikes a fair balance," India's finance minister P Chidambaram told reporters.

"Land has to be made available, but while land is being either purchased or acquired to make land available for industry, we must also keep in mind that those who are deprived of land are in most cases deprived of the only asset they have."

Another bill, passed on Monday, offers subsidised food to two-thirds of India's 1.2 billion population, fuelling criticism that lawmakers are more concerned with elections due by May 2014 than in building a strong economy.

"It's populist. They want to appease the farmers," said Paras Adenwala, MD and Principal Portfolio Manager, Capital Portfolio Advisors. "The UPA is making ground for election by these bills."

Indian shares fell by more than 3 percent the day after the food security bill was passed, on worries the scheme would overshoot the government's annual cost estimate of USD 20 billion.

Both pieces of legislation must be passed by the upper house before becoming law.

Farmers protesting against what they see as unfair land acquisitions have stalled projects in recent years.

The bill's pricing rules would oblige developers to pay up to four times the market rate for land in rural areas and twice the rate in urban areas. Displaced people must also be given homes and jobs.

"This bill will protect farmers and the rights of farmers," said Dushyant Naagar, the head of a farmers' lobby group in Uttar Pradesh, India's most populous state. He predicted that the generous pricing would help unclog project bottlenecks.

Other farmers' groups say the bill does not provide adequate compensation.

However, businesses say the new rules will raise costs and could even slow down acquisitions because of a requirement that four-fifths of all landholders concerned in a sale give their consent before any land is acquired for a private project.

For joint public-private projects, 70 percent of landowners must consent.

"In the present scenario of economic crisis, this bill will further hit investment and growth of industrialisation, employment and infrastructure," said Vikash Sharan, the director of the Indian unit of Posco, a South Korean steelmaker.

Posco has faced years of protests from farmers opposed to a steel mill in the eastern Indian state of Odisha that would be the country's largest single foreign investment project.

In a statement, business lobby group the Associated Chambers of Commerce and Industry of India (Assocham) said getting consent from 80 percent of land-holders "will be very difficult, if not impossible."

India's economic growth slowed to a decade low of 5 percent in 2012-13 and the rupee has lost over 20 percent of its value during the last three months. It hit an all-time low of 68.85 against the dollar on Wednesday.

Gross domestic product (GDP) figures for the first quarter of 2013-14 are due to be released on Friday.

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