JOIN USVoice ignored, industry sulks
Castigated by many for its “policy paralysis” in its second innings at the Centre, the Congress-led United Progressive Alliance (UPA) seemed to be finally getting its act together when it debated and got passed two most debated legislations in Parliament.
One, which gives dirt-cheap food grains to the poor but threatens to put government’s finances in a disarray, and the other which `intimidates’ investors, especially the manufacturing sector - a major contributor to India’s economic growth.
The land acquisition and food security bills, all set to become the law of the land, have their critics but when Parliament debated, scant voices of opposition were heard on the well-timed and politically correct legislations. While the government managed to get the entire Opposition on its side to pass the two controversial legislations, the voices against the two bills termed them as a “gimmick” brought in with an eye on elections.
Industry and investors have expressed concerns over the two mammoth legislations which can further pull the levers of India’s already slow-growing economy. India’s economy which last year grew at its slowest pace in a decade, decelerated further in the first quarter of this year. Price rise became more pronounced and Centre’s revenues shrank in the years since 2008 because of largesse handed out to voters. The developmental work in the country got a further jolt when the government put tight leash on capital expenditure last year in the name of correcting its depleting coffers. The slow pace of growth in the West and geo-political crisis in oil producing countries added fuel to the fire. At this juncture, the only prescription before the government was a deft handling of its finances by cutting subsidies, slashing unnecessary imports and re-igniting stalled investments backed by speedy land and environmental clearances.
Industry says the two legislations did exactly the opposite. Noted industry leaders have warned that the populist programmes will only lead to spiralling of the subsidy bill and that the ever-rising subsidy will never lead to any correction in government’s revenues. Besides, it will distort country’s food economy. India produces 225-230 million tonnes of food grains every year. Fulfilling the food security bill demand of covering three-fourths of the country’s population will call for import of food grains which will naturally lead to increase in food inflation. There will also be pressure on food prices for those outside this social sector programme.
Ironically, only two days after the bill was passed by both Houses of Parliament, Prime Minister Manmohan Singh said that India needed Opposition’s support for more difficult reforms such as reduction in subsidies and a few others. This prompted the critics to say that the government was being pro-reforms one minute and populist another. Credit rating agencies, foreign institutional investors and domestic investors took note of the government’s move and some said reposing confidence in India’s commitment to fiscal reform was difficult in such an environment. The rating agencies said that the move on food security was credit negative.
As regards the land bill, experts say the industry, which is already reeling under the impact of a sharp slowdown, high interest rates, delay in implementation of policies, rising input cost and slowing factory output, will only meet with more unrealistic proposals that will delay in acquiring of land for projects.
There are several provisions that have been a cause of concern for the industry. The Bill includes a clause where the compensation to the land owner is four times the market value in rural areas and double in urban areas. Also, consent from 80 per cent of displaced people will be required to acquire a chunk of land. This, while delaying land acquisition, will enhance the cost of industrial and housing projects substantially.
Industrial projects will become financially unviable in some cases. A back of the envelop calculation suggests that the cost of land acquisition will be nearly 10 per cent of project cost. Secondly, under resettlement and rehabilitation (R&R) clauses, even private acquisition above a certain threshold will have to budget for land, housing, employment and annuities. So, companies will have to earmark make that kind of budget in terms of buying land.
According to the Confederation of Indian Industry (CII,) it will be very difficult for the industry to acquire land if 80 per cent approval is required. “India already faces a lot of issues relating to land acquisitions and land costs. This clause will add to the problems,” according to Chandrajit Banerjee, Director General, CII. The Associated Chamber of Commerce and Industry (Assocham) said while it welcomed the provision of 67 per cent consent for PPP projects, the move to raise it to 80 per cent for private projects is “unreasonable and irrational” as it would cause substantial delays to project implementation. “Getting consent from 80 per cent land owners will be very difficult, if not impossible. Therefore, the consent of 65 per cent of families of the affected area should be prescribed,” said D S Rawat, secretary general of Assocham.
The Bill also has a provision that if the acquired land remains unutilised for five years, it should be returned to the owner. The industry leaders opine this is unrealistic as the industries grow in phases.
The Bill has also introduced the concept of leasing of land by the owners to the industry rather than selling them. Leased lands may impact mergers and acquisitions. Some even say that the land law brings back the licence-permit-quota raj. And that it will create opportunities for rent-seeking behaviour by politicians and crony capitalists by putting obstacles in the way of those who want to set up businesses and create jobs.
Land Bill
* Land owners to be compensated four times the market value in rural areas and two times in case of urban areas
* Consent of 80 per cent of land owners to be required in case of acquisition
of land for use by private companies or public private partnerships
* If the acquired land remains unutilised for five years, it should be returned
to the owners
* Introduces the concept of leasing of land by the owners to the industry
rather than selling them
* There is retrospective applicability clause in the Bill
* Not applicable to irrigation projects where environmental impact assessment is required under the provision of any other law already in force
* Provides sharing of capital gains with original owners; there are 25 different infrastructure services as part of rehabilitation and resettlement
* Scope of Bill includes all land acquisition done by the Centre or any state
government, except the state of Jammu & Kashmir
Food Bill
* Total estimated annual food grains requirement: 61.23 million tonnes; to cost exchequer Rs 1.25 lakh crore annually
* Covers up to 75 per cent of the rural and 50 per cent of the
urban population
* Households to get 5 kg food grains per person at fixed rate of
Rs 3 (rice), Rs 2 (wheat) and Rs 1 (coarse grains) per kg to about 800 million people
* Protection to 2.43 crore poorest of poor families under the
Antodaya Anna Yojana; supply of 35 kg foodgrains per month per family will continue
* Meal entitlements to specific groups: pregnant women and
lactating mothers, children between the ages of six months and 14 years, malnourished children, disaster affected persons, and destitute, homeless and starving persons
* To be linked to the Aadhar scheme
* Public Distribution System to be reformed
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