Anuj Puri of Jones Lang LaSalle (JLL) India shares his views on the Land Acquisition Bill and how it will deeply impact the infrastructure industry more than the real estate sector.
The Land Acquisition Bill, which the new Bill now supersedes, is a century-old law with many archaic elements and loopholes. The new Land Acquisition Bill essentially champions the cause of the marginalised section and puts in place many safeguards and checks.
The Parliament has now passed the new Bill with amendments such as exclusion of irrigation projects from the compulsory Social Impact Assessment study within a period of six months from the date of acquisition, and tweaks in Clause 25 of the Act pertaining to the determination of compensation.
In India, a majority of land acquisition-related disputes / litigations have erupted from the unfair and highly subdued compensation to land owners, and lack of thorough and clearly-defined rehabilitation and resettlement policy for those displaced due to acquisition and acquisition of land in regions / areas inhabited by scheduled castes and other tribal people.
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The new Bill addresses all of these concerns. It has aggressively ramped up the valuation to twice the guidance values in urban areas and four times the Guidance value in rural areas.
The law clearly states that no one shall be dispossessed until and unless all payments are made and alternate site for resettlement and rehabilitation have been prepared. Also, it prohibits the acquisition of land in scheduled areas without the consent of the rural authorities, or ‘gram sabhas’.
In case of land acquisition for PPP projects or for a private player, the Bill requires consent of no less than 70 percent and 80 percent of those whose land is sought. It also stipulates the provision of 40 percent profit sharing with original owner in case of sale of land to the third party for a price higher than compensation paid.
Through all these provisions, the new Bill attempts to address the conventionally prime reasons for litigation and grievances. Hence, litigation and related costs can be expected to decline.
Taking a holistic view of the Bill and its potential implications on the Indian real estate and infrastructure industry, there seem to be two opposing forces at work here. On one hand, legal complications and grievances related to land acquisition are expected to subside, thus streamlining the acquisition process.
On the other, a sharp increase in land-related costs will lead to hugely enhanced financial burdens to developers, since the Bill add to add to the cost of projects, that too substantially in some cases.
In a developing economy like India, where infrastructure-related projects and urbanization are of paramount importance, enhanced project costs resulting from the new Bill might be a severe setback for infrastructure development and urbanization attempts. The enhanced compensation clause and the R&R clause will have a direct cost implication. The consent clause holds the potential to delay the start of such project.
In fact, many infrastructure projects might eventually be rendered unviable and the private sector - already not too interested in partnering with the Government in wake of delays and regulatory complications - might be even further discouraged from considering any potential partnership with the Government in PPP projects.
Given the fact that the provisions of the Bill will be applicable in cases of land acquisition of 50 acres in urban areas or 100 acres in rural areas, most residential, commercial and retail projects will be immune from these clauses as they occupy an area smaller than stipulated in the Bill.
Also, most of these projects were initiated after adequate compensation to landowners and with their 100 percent consent. Nevertheless, an important trend in the real estate industry that will further pick up is joint development. Many developers looking to safeguard profit margins and share the risk will now follow the joint development route.
Thus, in a nutshell, the infrastructure industry - and its players - will be more severely impacted than real estate industry. As far as institutional capacity to implement the key reforms of Bill is concerned, it does not seem that we have the infrastructure and systems in place to effectively make all the reforms work on the ground.
The law and order machinery will need to be augmented. Also, many regulatory mechanisms will need to be initiated or made robust for continuous monitoring.
The author is the Chairman & Country Head, Jones Lang LaSalle India.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.