September 17, 2011:
Ownership, valuation and transfer of land are complex issues, especially for countries like India, characterised by high population densities. Land has been occupied over millennia and owned within the family or community, and its transfer often evokes high emotions.
Acquisition of land should not be a major issue in India where millions of hectares are lying uncultivated and unused; yet, the reality is that the issue has become highly politicised.
Against this background, the draft Land Acquisition, Rehabilitation and Resettlement Bill just released by the Ministry of Rural Development, is welcome as it tries to bring clarity to the issue and clears the path for direct transactions between the buyers and sellers of land, hitherto practically ruled out for large transfers of land required for putting up manufacturing plants or constructing infrastructure capacities.
We, in FICCI, have for sometime suggested minimal intervention by the government in land transactions to de-politicise the issue. It makes for transparency and allows open price discovery. The Land Acquisition Bill will actually help this process significantly, if it lays down a clear and simple procedure for change in land use.
The Bill should make it mandatory to announce the change in land use in advance of any acquisition by either a private buyer or the government, as that will allow the price to move towards the real market price and minimise covert transactions.
Without such a provision, the present suggestion of valuing all rural land at four times the 'market price' and urban land at two times, may well make price discovery even more difficult than at present. Using the 'value of last sale' as the basis for determining the price of acquisition without announcing the change in land use may make it even more difficult of a market determined price of land to emerge in the country.
We must recognise that only a well functioning land market will help to bring maximum possible transparency and economic rationality in determining the real price of land — a critical factor of production. India's cultural and historical traits combined with land ceiling laws and tax-exempt nature of agriculture has meant the absence of an organised land market.
An organised land market is necessary not only for industrialisation and urbanisation, but for modernising agriculture, too. Therefore, an important criteria for determining the efficacy of the draft land acquisition Bill recently put forward by the Ministry of Rural Development should be whether or not it facilitates land price determination and its transfer in open market transactions. I am afraid, on this important economic criteria the draft Bill may not pass muster.
Moreover, the proposed Bill stipulates that the market value of land could be determined by the Collector which leads one to ask why an independent, impartial body — for example the Gram Sabha or Panchayat — would not be a better arbiter for the price of land. The government, as a result of the new Bill, would exit from its role of “real estate broker”; it should now exit from its role of prime determinant of fair value as well.
Making the new legislation effective on a retrospective basis is generally a bad idea. It creates too many uncertainties and can open a Pandora's box of litigation. It is a universally accepted fact that businesses hate uncertainty and to disrupt in this manner their assumptions and the revenue model on which they have based their business expansion would appear counterproductive.
The R&R package is far too complicated and complex. Its provision, for example, of the seller to be compensated for the next 20 years, could make life very difficult for any buyer.
The requirement of paying 20 per cent of capital gains to the original owner for 10 years may sound eminently reasonable on paper, but will be nearly impossible to implement. The stipulation that all the R&R provisions apply to private buyers in case they are purchasing more than 100 acres of land will make future expansion of manufacturing capacities terribly difficult.
The clause pertaining to “multi-crop” land will effectively render about 55 million hectares or 40 per cent of arable land beyond the scope of acquisition, thereby precluding the development of much-needed infrastructure. Yet, few will deny that infrastructure bottlenecks are impeding the economy.
This issue needs to be re-examined, since most of this land falls in the most densely populated regions of the country and provision for “eminent domain” needs to be retained for all parts of the country. The provision permitting acquisition of only 5 per cent of multi-crop land in any district could militate against a farmer's fundamental right to divest his land and move on to other locations, vocations and enterprise.
How can the Indian economy continue to grow unless it industrialises? How can the country's largely young population get employed unless manufacturing contributes considerably more to the economy? Will services sector growth suffice to absorb the 13 million entrants to the workforce every year for the next decade? I am afraid not.
Manufacturing will have to expand and increase its share in the GDP. To enable this, a less stringent and more flexible approach to land acquisition is perhaps needed.
(The author is the Secretary-General, FICCI. The views are personal.)
Tuesday, 27 September 2011
Business Line : Columns / Rajiv Kumar : Land Bill will act as a drag on industry
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