New Indian land law won't restore fragile confidence

With it's new Land Acquisition Bill, the Indian government has dramatically changed the balance - to the detriment of the country's industrialisation.

It was a bad law, and it had to go.

When Indian farmers used to sell their land, to the government or to businesspeople, they usually got a raw deal: a small amount of money and, in the name of "rehabilitation and resettlement", a move to a hot, poky, tin shack in a slum with no jobs.

When the meagre compensation ran out, many of these former farmers fell into destitution. In some cases, farmers got no compensation at all. Even those who received a respectable sum tended to squander it.

The law governing such transactions was not just bad, it was old. Land acquisition had been governed by a colonial-era law dating back to 1894. Change was urgently needed.

But now, with the Land Acquisition Bill passed by the lower house of Parliament last month, the Indian government has pushed the balance too far in the other direction, to the detriment of the country's industrialisation.

The new law makes acquiring land diabolically difficult. Anyone seeking to buy land to set up a factory in an urban area has to pay twice the market rate. If the land is in a rural area, the buyer must pay four times the market rate.

Why would anyone bother trying to build a plant, road, airport, township or industrial project, when the cost of land is going to be so exorbitant?

India needs to push ahead with rapid industrialisation to generate the millions of jobs it needs to employ the 65 per cent of its population that is below the age of 35. The country also needs to build new infrastructure.

The bill (yet to be passed by the upper house, but that is a mere technicality) will make many new projects unviable. Infrastructure work will be the worst affected because the government needs private investment in the form of joint venture partnerships to raise the money for these projects. With a rise in the cost of land, investors will steer well clear of such projects.

A second major feature of the bill is going to be equally damaging. The consent of 80 per cent of landowners must be obtained before any acquisition can proceed.

Given the fragmented nature of landholdings in India, buying, say, 200 hectares of land could involve dealing with over 100 owners.

This will mean long delays in a country where it can already take a decade for a large project to be commissioned.

Whenever a large tract of land is required for an industrial project, if farmers aren't denouncing it, then civil rights groups are campaigning against it and filing legal petitions. Many projects then get bogged down in the courts.

Purchasing land has been a stumbling block for investors looking to set up operations in India. Fed up, numerous Indian industrialists have taken their money to Africa or Latin America where it is easier to buy land.

The number of multi-billion-dollar projects that are stalled is so large that the prime minister, Manmohan Singh, recently knocked ministers' heads together to get some movement.

With so many projects already stalled, India's global competitiveness fading, economic growth heading downwards to four per cent and the rupee having lost 20 per cent of its value in just the last three months, this bill is the last thing India needs to restore investor confidence.

It's not as though the government had no other options. A perfectly good 2007 law lays down how families displaced by public projects such as dams or power plants must be treated. All the government had to do was implement the same rules for private-sector purchases.

But ministries have ignored that law, mistreating displaced people cruelly. Because the policies laid down were never followed, farmers' anger rose over the years, leading to public protests that culminated in a demand for a new and fairer land acquisition law.

Nor has the government explored other models such as that used for the building of Kochi International Airport in Kerala. In that case 1,700 hectares had to be acquired, and about 2,300 landowners were resettled under a rehabilitation package. The process went comparatively smoothly because the developers found a job at the airport for one member of every affected family, and also distributed shares in the project so that people would continue earning income, rather than merely getting a one-off payment for their land.

Instead of introducing a new law with provisions of that kind, to ensure fair compensation for farmers and provide land for industry at a price that keeps projects viable, the ruling Congress Party has opted for a populist policy that bestows windfall prices on farmers.

Is it any wonder that the Indian growth story seems to be over? Mostly, the government is catatonic, unable to take decisions. On the odd occasion when some neurons fire, it passes ill-conceived measures such as this.

Leading industrialist Ratan Tata, a man of few words, recently voiced what many frustrated Indians have been feeling for the past two year or so under this government: "India has lost the confidence of the world,"   he said.

Amrit Dhillon is a freelance journalist based in New Delhi