Food Security Bill and Land Acquisition Bill are the two main election planks for the UPA government. However, if companies defer their capex plans due to the steep rise in land costs, then transactions may fall and the supposed gains to farmers may be minimal, Nomura says

The Lok Sabha debated and passed an updated version of the 19th-century legislation governing land acquisition. The ‘Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation & Resettlement Bill, 2012’ seeks to give a fair deal to farmers losing their land, especially multi-crop land, to industrial needs.

In a research note, Nomura Financial Advisory and Securities (India) Pvt Ltd, said post the Bill, land acquisition in India would become a costly affair. "The challenge with the land bill is to balance the benefit to farmers with the cost to industry. The bill fits well with the government’s 'inclusive growth' agenda, also furthered by the Food Security Bill. In fact, the Food Security Bill and the Land Acquisition Bill are the two main election planks for the United Progressive Alliance (UPA) government. However, if companies defer their capex plans due to the steep rise in land costs, then transactions may fall and the supposed gains to farmers may be minimal. From a macro perspective, the Land Bill is a negative for the private sector, as it increases land costs significantly and extends the acquisition process," the report said.

Here are the key features of the bill

1.  Pre-conditions for land acquisition:

Mandatory social impact assessment (SIA) to identify families that would be affected.

In the case of land acquisition for use by private companies or public private partnerships (PPP), consent of 80% and 70%, respectively, is required from the people that would be displaced.

Payment of compensation and a provision for rehabilitation and resettlement (R&R).

2.  Compensation policy: Up to four times the market value in rural areas and twice in urban areas. If the acquired land is sold to a third party for a higher price, 40% of the appreciated land value (or profit) will be shared among the original owners.

3.  Rehabilitation & resettlement rules: Families affected by land acquisition (farm labourers, tenants, sharecroppers and workers) need to be given compensation of Rs5 lakh or a job; a subsistence allowance of Rs3,000 per month for a year; miscellaneous allowances of up to Rs1.25 lakh per family.

4.  Retrospective clause: The new rules will apply retrospectively to cases where no land acquisition award has been made and to those where land was acquired up to five years prior, but no compensation was paid or no possession took place.

5.  Definition of market value: The market value of the acquired land shall be based on the higher of (i) market value specified in the Indian Stamp Act for the registration of sale deeds; or (ii) the average of the top 50% of all the sale deeds of similar types of land situated in the vicinity; or (iii) an amount agreed upon as compensation for acquisition of land for private companies or PPPs.

6.  Lease option: Companies can lease the land instead of purchasing it, but the decision is that of the state rather than the landowner.

According to Nomura, the main benefit of Land Acquisition bill is that it ensures equity and fair dealing with farmers. Clear guidelines on the process of acquiring land and rules for compensation packages will ensure that the process of land acquisition is clear.

"However," Nomura said, "the bill has negative consequences for industry. First, market prices of land have already been rising. By providing a compensation package that is a multiple of the current market price, the bill can raise the cost of land acquisition significantly, increasing the overall cost of a project. In some cases, this could make the overall project unviable and hurt capex. Second, rising land costs will have an overall inflationary impact on the economy. Third, the bill will elongate the process of land acquisition."

The Bill, which replaces the British-era Land Acquisition Act of 1894 provides for land acquisition as well as rehabilitation and resettlement. It will now be taken up by the Rajya Sabha.