Acquisition bill for land can make many projects unviable

The much debated Land Acquisition, Rehabilitation and Resettlement Bill, 2011 (LARR Bill) has seen objections from opposition parties to various clauses who want it to be first reviewed by a parliamentary committee. However, it has now received the nod for being placed in Parliament for discussions in the second half of the Budget session.

This crucial Bill seeks to replace the antediluvian Land Acquisition Act of 1894 with a fresh legislation wherein the component of compensation for resettlement and rehabilitation of the project affected families is added. In view of recent instances of disputes relating to forced acquisition of ‘agricultural land’ across the country, a central law, which is in line with today’s situation to govern land transactions and which also satisfies various stakeholders involved is much needed. The Bill covers land acquisition, including infrastructure and industrial developments, thereby bringing in government, quasi- government and other bodies under its ambit.

The LARR Bill is expected to majorly affect the development of large infrastructure development projects, industrial and integrated township projects; and, if they are brought under the ambit of this law -- SEZs too. The provisions of the Bill will be applicable in cases of land acquisition of 50 acres in urban areas or 100 acres in the rural areas. The compensation for land acquisition will now at least double in urban areas and will go up by four times in the rural areas, according to the new LARR guidelines.

Thus, the cost of land acquisition will surely go up for all projects irrespective of them being government or private or public-private-partnership (PPP) projects as they will have to adhere to the new norms. Further, the clause of mandatory consent of 80 per cent of owners for private projects and consent of 70 per cent of land owners for PPP projects will delay the process of land acquisition, and the projects in turn. As land titles are not clearly documented in our country, even if the Bill becomes an Act by the end of the year, it will take quite some time to change the current situation.

Infrastructure projects will be the hardest hit. In many instances, this rise in input costs is likely to make the projects unviable. As it is, the infrastructure projects are under pressure, especially those in the rural areas, as it is difficult to monetize them; so the private sector is not interested in these projects. The growth of India is largely dependent on infrastructure development which the government cannot take up single-handedly.

Hence, the co-operation of the private sector becomes necessary. The consent clause will delay the start of the project, further making the required returns from the project difficult to achieve. Therefore, if India’s growth story is to continue, a user development fee will have to be charged and the price of utilities like electricity and water will have to go up to rake in the revenues. On the whole, this is a laudable reform by the government for providing equitable sharing of profits while also moving a step closer to a laissez faire kind of environment.

The high rate of migration and natural growth rate of our population in the urban areas highlights the need for building new cities as existing ones are overburdened. Satellite towns depend on the parent city for their work and employment requirements, while the need of the hour is to build self-sustaining urban centres. If the LARR Bill came into existence in its present form, developing cities on a large scale would be difficult due to the requirements of getting consent from 80 per cent of project-affected people, arranging for their rehabilitation and resettlement (R&R), as well as paying a premium price for land shooting up the overall budget to very high levels.

For the real estate industry too, the addition of an R&R component will be a huge financial burden due to which the LARR Bill has received flak from them. Post the Bill, the cost of land acquisition will increase across the board and the real estate developers intend to pass on this increase in input cost to the buyers. So certain sections of the industry feel that an increase in property prices will ensue the passage of the LARR Bill, negatively affecting the ordinary buyers. Considering the present scale of projects, most of the residential, commercial and retail real estate projects occupy an area of land smaller than the stipulated parcel size.

Many big private real estate players have bought the land at market prices and with full consent from the land owners. However, their input costs will rise as a result of the increase in compensation and adversely affect their profit margins. Since the developers will want to preserve their profits, we will see more joint development projects happening, wherein the profits as well as resources and risks will be shared.
Already, in many Tier-1 cities, joint development is a route being followed by developers, and this practice is likely to spread all over. Looking at the emerging scenario, the Bill should exempt open market transactions from its aegis to prevent a decline in investments and undue rise in the land prices for private purposes, thereby adversely affecting economic growth.

(The author is executive managing director, Cushman & Wakefield, South Asia)