The new Land Acquisition Act, which came into force on first January, 2014 seeks to fundamentally alter the system of land acquisition in India. While the Act has been hailed in many quarters as a benevolent social legislation which, if implemented correctly, will have immensely beneficial social ramifications, it has also been the subject of intense criticism, especially by captains of industry, who argue that the law not only fails to adopt a pragmatic and feasible approach for monitoring land acquisition but is also in sharp conflict with India’s goals of attaining investment-driven economic growth.

While the law was undoubtedly actuated by noble intentions, it is dismaying to note that the Act is predicated upon an understanding of the forces that shape the investment policy of large businesses that is not completely tenable.

As Maitreesh Ghatak and Parikshit Ghosh argue in this article, the Act is an ill-conceived legislation which completely fails to strike a judicious balance between growth and justice.

A closer inspection of the legislative history and pertinent provisions of the Act reveals that the apprehensions of the corporate sector are, to a large extent, justified.

 

Legislative history:

The National Advisory Council (NAC) played an instrumental role in drafting the Land Acquisition Bill in its most rudimentary form. While some minor modifications were subsequently made to the Bill, most key provisions were retained in the final version of the Bill.

While the NAC has played a commendable role in reducing the widespread inequities that exist in our society by championing welfare schemes for the poor, it lacks the ability to fully understand the market forces that govern the relationship between land owners and private businesses who intend to acquire their land. As there are hardly any business leaders or financial experts in the NAC, the NAC often fails to take cognizance of legitimate concerns of corporate houses while framing economic policies.

As one writer has rightly pointed out, NAC members have a peculiar tendency of legislating “with their hearts and not with their brains”.

 

Complex procedure of land acquisition:

Business houses have vehemently criticized the procedure for land acquisition that has been laid down in the Act.

The Act unequivocally states that a detailed report evaluating the socio-economic implications of the acquisition on the residents of that area must be prepared in consultation with the local residents associations in urban areas and village council in rural areas.

Thereafter, the report has to be scrutinized by an expert panel consisting of two social scientists, two rehabilitation experts and a technical expert having knowledge of the project for which

the land is to be acquired.

Moreover, the intention of acquiring the land must be made explicit by way of registration within 12 months of the submission of the report.

Any objections to the proposed acquisition have to be made to the administrative head of the concerned area.

The government can acquire land only after completing the aforementioned formalities.

This procedure can be circumvented only if the government decides to invoke the urgency clause which can only be done in the rarest of rare cases in national interest.

In the views of many business leaders, this procedure is highly infeasible and would make it virtually impossible for any project to properly take off because, they argue, committee clearances in India are inextricably intertwined with red-tapism.

In addition, by the time all the clearances are actually obtained, the project may lose its relevance or the project cost may significantly rise, so many businesses may simply decide to give it up.

 

High cost of acquisition:

The new Act seeks to provide compensation up to 4 times the market value of the land in rural areas and twice the market value in urban areas. Many business leaders argue that the level of compensation is so high that it will stultify large investments and have myriad deleterious effects on infrastructural development. As the Confederation of Indian Industry has stated, the new law would raise the cost of land acquisition by 3-3.5 times and the cost of rehabilitation and resettlement by 3 times.

This would, they argue, make it virtually impossible to construct roads, ports and other projects for economic advancement.

What is even more surprising is the fact that no economic rationale has been offered by the government for determining the price of land acquisition. As a matter of fact, the first draft of the Bill sought to provide up to 6 times the market value in rural areas and thrice the market value in urban areas to land owners. The reasons for fixing the final figures at 4 and 2 respectively are not well-documented.

As the land market in India is imperfect on account of power and information asymmetries, it would have been more prudent for the government to develop a robust and flexible mechanism for price determination instead of imposing a rigid rule.

 

Limited role of government:

The Act empowers the government to acquire land for private companies or for public-private partnerships only if the project in question is for a public purpose.

Business leaders argue that, in a complex and diverse nation like India, the government must, of necessity, play the role of a facilitator to enable private sector industries to acquire land.

They argue that the government should facilitate the acquisition of land for the private sector for large-scale projects relating to steel, cement, etc where 75% of the land has already been purchased by the private sector.

When asked about the limited role of the government in the new law, the then Union Rural Development Minister Jairam Ramesh stated that the private sector must look beyond land acquisition by the government and should instead focus on land purchase. He further added that it is not the responsibility of the government to acquire land for rich industrialists whose only motive is to maximize their own profits.

Mr. Ramesh’s argument definitely carries force, but it is essential for the government to realize that it is very difficult for big industrial projects, especially in the manufacturing sector, to materialize without the help of the government.

 

Other concerns:

Following are some of the other concerns that businesses have expressed about the Act:

First, the Act stipulates that consent of affected families and not land owners has to be sought for land acquisition. The term ‘affected families’ has been defined very capaciously, so it would be highly difficult to find all affected families and to obtain their consent for acquiring land.

Second, many stakeholders argue that the strict restrictions on the acquisition of multi-cropped land are unwarranted. Industrialization plays an indispensable role in fostering growth, the argument goes, and, therefore, its importance cannot be undermined for the sake of food security.

Third, as this articlein the Economic Times indicates, the government has still not framed the relevant rules pertaining to the Act even though several months have elapsed since it came into force. As a result, development projects have reached a standstill.

Finally, the government needs to amend 13 acts to bring them in line with the policy outlined in the Land Acquisition Act. The Act cannot be implemented efficaciously until this is done. A lot still needs to be done in pursuance of this goal.

 

Conclusion:

The Land Acquisition Act was enacted in response to the slowdown in economic growth which was, to some extent, attributed to the archaic system of land acquisition laid down in the 1894 Act.

However, it is widely believed that this Act, in its current form, has actually exacerbated problems instead of solving them.

In its admirable haste to prevent the exploitation of land owners, the legislature did not evaluate the viability of the entire mechanism that the new Act seeks to create for land acquisition.

It is necessary for the government to ensure that pro-poor and pro-farmer rhetoric does not get in the way of industrialization which is the most powerful engine of growth and the biggest source of job creation.

The new NDA government needs to suitably alter the law in order to strike the right balance between the interests of poor land owners and the need for industrialization.