India will need about eight million hectares, or 2.4% of its total land mass, for mining, industrialisation, infrastructure and urban housing, if it is to enjoy 9% GDP CAGR. Corruption in land dealings could be a major risk to growth as this could slow down the process and escalate costs. The intangible costs to the environment and livelihood is also likely to be high
In a report titled 'Hungry elephant: The need for more land', dated 10th November, to institutional clients CLSA says, "India will need about eight million hectares of land, or 2.4% of the nation's 329 million hectare land mass, for mining, industrialization, infrastructure and urban housing, if the country is to enjoy the 9% GDP CAGR that we forecast. To support this growth, India needs large infrastructure spending, estimated at about $1.2-1.5 trillion to 2020. This should also drive up urbanization from 30% today to 36%, with an additional 130 million people living in cities."
However, while land is the biggest need of the hour for development, it is also fast becoming the biggest constraint in project implementation. As demand for land has skyrocketed, so has corruption surrounding issues such as land acquisition, titles, and so on. This corruption can significantly slow down acquisition timelines and therefore project implementation, not to mention increased costs, and this could cause a dent in India's ambitious growth targets, says CLSA.
Here are some facts connected on the land issue in the country:
Mining is going to be a super important sector in the coming decade if India has to sustain a 9% GDP CAGR. At this growth rate, consumption of metals and minerals in India will grow 3-4 times in the next decade. In this respect, CLSA points to China's growth between 2002 and 2010-an 18% CAGR in GDP which led to a 16% CAGR in resource consumption. The highest growth in consumption was in iron ore, coking coal, aluminium and natural gas at 17-19%, followed by 12-15% CAGR in steel, copper, coal, cement, and electricity. "China spent on infrastructure in one year as much as India spends in five," the report pointed out.
However, all this development came at a cost-it led to increased pollution, especially of water bodies, a high level of mine accidents, demonstrations and protests over land acquisition for industrialisation and a severe decline in farmland. It is very likely that like China in its high-growth years, this issues will worsen in India over the next ten years.
In India, in the past 20 years, coal production has tripled, iron ore production has increased by 286% in the past ten years and bauxite production has grown by 350%. The Centre for Science and Environment estimates that in the last 25 years 1,64,610 hectares (or 4,06,760 acres) of forest land was diverted for mining.
"According to the Government of India's mining plans, 450 new coal mining blocks spread over 3,80,000 hectares (almost a million acres) of forest land will be opened up in future, about six times the area of Mumbai city," the report said. Mining will generate huge waste-for precious metals, the waste-to-ore ratio is almost 99% and 60-100% for industrial metals.
One major problem for India is that most of the high-mineral-producing areas are also the most densely forested ones. Barring Gujarat, the other five states of Orissa, Andhra Pradesh, Chattisgarh, Jharkhand and Madhya Pradesh have forest cover higher than the national average. The other problem is that India's tribal population of about 85 million inhabits lands that are mineral rich-90% of coal and 80% of other minerals are found in tribal-dominated regions.
The CLSA report draws a number of conclusions on urbanisation. It also assumes that what India cannot produce in abundance, it will import in the next few decades. One of the major products that will be imported is coal. It estimates that India's coal import requirement will touch 240 million tonnes (mt) in FY16 from 99mt in FY11. This would entail a necessary upgradation of port infrastructure along with infrastructure investments in general.
The report also touches on the vast needs for urban infrastructure in the country if an additional 130 million people are going to be living in cities in the next decade. It points out that water coverage in India lags basic global standards, as does its sanitation infrastructure. McKinsey's 'India's urban awakening' report had estimated that about 331 million inhabitants would be living in Tier-3 and Tier-4 cities by 2030 (from 195 million in 2008), 104 million in Tier-2 cities (from 52 million) and 155 million in Tier-1 cities (from 93 million). McKinsey has also estimated that the incremental land requirement to meet urban demands would be 11 million hectares (27.2 million acres).
The two biggest obstacles to land acquisition are rehabilitation of locals and environment clearances. "The people who are being displaced and rehabilitated, often do not see any, or at best inadequate compensation, relief and rehabilitation.
Apart from the equity concerns of project-affected people, the second concern is ecological and environmental-and many projects have faced opposition from environmentalists," the CLSA report said. Some of the larger projects affected by one or both of these issues include the Posco Steel project, Vedanta aluminium project, Arcelor Mittal steel plant, Tata Steel plant (all in Orissa), the Dadri project and the Yamuna Expressway project (in Uttar Pradesh), the Tata Nano project (in West Bengal) and the Sardar Sarovar dam project (in Gujarat).
The report makes a very interesting point on the limited alternatives for people displaced due to such projects. "A vast majority of the rural population, estimated at about 60-65% of India's total population, has limited skill sets for any alternate means of livelihood. There are limited opportunities for them as the demand for unskilled or semi-skilled workers is not growing in large numbers and job creation is not enough to absorb the vast sections of the population that is unskilled as far as modern manufacturing is concerned. Most land acquisition plans have virtually no provisions for the training of the local population, development of new skill sets for the displaced population so that they can either adopt alternative means of livelihood or be gainfully employed."
The report touches on the fact that a vast majority of the rural population is not at all exposed to urban living and is ill-equipped to find gainful employment if the transition to urbanisation happens too quickly. "The transition from an agrarian or a rural economy, to a manufacturing and service economy is not going to be easy for a majority of the population, unless they have been living on the fringes of an urban society and thus, already exposed to it, or unless the transition happens slowly, as in the case of satellite cities of Mumbai and Delhi, like Navi Mumbai, Gurgaon or Noida." CLSA believes that we are likely to see rising social discontent in the coming decade over the issue of inadequate rehabilitation and compensation. In China, due to the curb on the media and the closed political and judicial system, these protests (if any) were not very visible until recently-in India these could blow up into a major political fireball.
CLSA pointed out, in order to clear discrepancies, in the Kalinganagar case in Orissa the state government bought land from farmers at Rs 1,00,000 an acre, only to sell it to Tata Steel at Rs 4,00,000 an acre. Naturally, farmers do not believe that the government is on their side. Agricultural land owners (farmers) are up in arms against the archaic law that bans the use of agricultural land for non-agricultural purposes unless the local or state government issues a 'Non-agricultural Use Clearance'. Also, individuals or companies cannot buy tribal land and in many states non-farmers cannot buy agricultural land at all. But this has not stopped land transactions from taking place and most of the benefits have flowed to corrupt government officials in under-the-table dealings, rather than to farmers who have lost their primary source of livelihood.
CLSA also pointed out that land records in India are a mess and mostly outdated. "Land titles in India are "presumptive" and not "conclusive". "This means that the registrar's office does not have the obligation to check the veracity of the title claims-this severely weakens the protection to the buyer leading to several cases of fraud. Not surprisingly, about 70% of civil court cases pertain to land ownership issues," the CLSA report said.
Land reform is happening in a fragmented manner in India. For example, in Karnataka, under the Bhoomi project, all land records are being digitized, empowering farmers and shielding them from corrupt government officers. In Haryana, per-acre compensation given to the affected parties has been hiked to realistic levels and the state has provided for an inflation-linked royalty payment structure payable to the family over a period of 33 years. It is possible to duplicate some of these efforts in other states to bring in greater transparency.
The report talks about the businessman-politician nexus that is the very crux of the corruption surrounding land deals. "By all accounts some of the biggest players to emerge in land ownership, township/infrastructure development, and mine ownership are politicians," the report stated. It quoted an article in The Economist in September which said, "Corruption is debilitating. Many businesspeople think it is getting worse. In the old days ministers asked for bribes. Now they demand shares in firms to which they are about to award contracts, Indian bosses complain."
While in other sectors the role of the government was sought to be reduced (example, the end of the license raj where one needed government permission to start any factory), in land acquisition the role of the government has gone up since the 1990s. CLSA explains why: "At one end was the need to attract large-scale private-sector investments and step up development and at the other was the close nexus between politicians and businessmen, which helped both to make money by using the 'regulatory arbitrage' and also 'information arbitrage' by virtue of advanced knowledge about which parcels of land will be opened up where for development, or will be acquired by the government or an entrepreneur."
While touching upon the Reddy brothers illegal mining scam in Karnataka, the POSCO debacle and the revoked permission for the Vedanta refinery, the CLSA report stated some shocking facts. In the past few years, besides Karnataka, there have been 3,200 illegal mining cases in Rajasthan, over 8,000 in Maharashtra, over 7,500 in Andhra Pradesh and over a thousand infringements in Chhattisgarh. A report by the Central Empowered Committee has noted also that over 60% of all mines in Orissa are illegal. These illegal mining activities have led to massive losses to the state and central treasury, not to mention terrible and often irreversible damage to the environment.
In conclusion, the CLSA report stated, "The problems with land acquisition are resulting in project delays, abandonment and cost escalation, in addition to the very high cost society is bearing as livelihoods are lost, adequate relief and rehabilitation is not provided, law and order problems grow and the environmental resources get degraded. Further, certain segments of the population are deprived from new opportunities and development that could have happened. Urban centers of growth increasingly resemble chaos and squalor, barring a few exceptions, and some cities will find it difficult to attract talent. The issues and problems surrounding land acquisition can certainly dent the growth story of India."
Last year, a study by the government showed that 70% of 190 infrastructure projects have been stalled or delayed because of land problems, with the major issue being compensation. These included 60 projects for railways, 40 for national highways and 28 power projects. Most projects have time and cost overruns, with time overruns being far more than cost overruns.
Look out for the Land Acquisition (Amendment) Bill which could be tabled in the winter session of parliament. The main change will be on how the land will be valued-the bill proposes that the highest of the three values (the minimum land value specified in the Indian Stamp Act, 1899, the average sale price for similar land in the vicinity, the average sale price from the prices paid for land already purchased for a project) should be used. The bill also has provisions like unearned income to be shared and that the seller is to have a stake in the development of the land.
The new mining bill may also be tabled in the winter session of parliament. This bill seeks to simplify the application and approval process for new mines, introduce competitive bidding for mining licenses, and increase transparency in the process of bidding and compensation for people who are displaced. It is expected that companies which seek to win mining licenses will try and win over land owners by making them stakeholders in the prospective project (example, JSW Bengal, a subsidiary of JSW).
The report gives one the feeling that while it is not impossible to surmount the various problems surrounding land acquisition and development, the political will to do so is severely in question-one, because keeping alive the land acquisition issue helps political parties earn precious votes, and two, because the less transparent and unorganised the land process in India is, the politician-businessman nexus benefits the most.
(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).
A focused and an unfancied strategy has done wonders for Cipla
Cipla is one of India’s largest...
Recent media reports suggest that the market regulator has ‘enhanced its surveillance’ for possible violations of rules prohibiting insider trading. However, despite the repeated instances of price manipulation and insider trading that we have constantly been trying to highlight, SEBI has chosen to look the other way
It does not get any more bizarre than this. According to a senior official from market watchdog Securities and Exchange Board of India who spoke to the media yesterday, "SEBI has enhanced its surveillance for possible violations of rules prohibiting trading based on prior and inside information."
There's more. According to the market regulator, it has come across "over two dozen instances of major suspected violations of insider trading norms during the recent rally to new record levels above 21,000 level (sic) and the subsequent correction last week."
While it is extremely heartening that SEBI has woken up to this menace, readers of Moneylife know that we have been constantly highlighting cases of insider trading and price manipulation for over two years now.
But no action has been taken against these companies which have wilfully thrown regulatory norms to the winds.
It is well within the regulator's purview to have taken suo moto action against the cases that we have been repeatedly highlighting. But the silence has been deafening.
Here are just a few instances of naked manipulation in a few scrips. We have decided to highlight only those cases which we have unearthed this year, for brevity.
|Nikki Global Finance||1169%||www.moneylife.in/article/6258.html|
|*(Please click on the link for the exact period during which the stock price has zoomed)|
ML Bhakta from Kanga & Co has written to Moneylife articulating what a number of investors would feel: "I still wonder whether SEBI will ever wake up to the problem faced by unsuspecting investors - the sudden rise in prices of unknown scrips without any logic or reason, particularly when Moneylife is repeatedly pointing out instances of such cases."
SEBI's senior official (who has not been identified) told reporters: "While the suspicious trading activities have been noticed in SEBI's routine surveillance of market activities, the regulator has decided to probe further into these cases (the ones that SEBI has noted, not the ones Moneylife has been constantly unearthing) and enhance its oversight for such matters going ahead."
"Suspicious activities have been noticed in many other shares also but those are minor (emphasis ours) in terms of trade value and nature," added this official.
But this is another contentious statement. If SEBI had indeed "noticed" suspicious activities in other shares, why has it chosen to ignore them, in its own words, because they are "minor in trade value and nature"; shouldn't the regulator come down hard on each and every case of market manipulation, irrespective of the number of shares, size of the company and value of transactions?
As per SEBI's 'Prohibition of Insider Trading Regulations', an 'insider' is defined as any person "who is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access to unpublished price-sensitive information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information."
The regulator supposedly has systems in place to monitor unusual stock trends; suspicious activities are supposed to be probed further for violations of norms - including those regulating insider trading.
But by the looks of it, the free-for-all insider trading might continue unabated - if the powers-that-be don't wake up.