Land acquisition in India to become a costly affair, says Nomura

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.

  • User


    Vinayak Bhimarao Mudholkar

    6 years ago

    Ways to overcome this law : 1) Lease Dead 2) Verticle Growth of buildings 3) Wherever possible, work from home 4) Three shift working 5) Use of technology to improve space utilisation

    S&P sees rocky road ahead for high deficit countries like India, Indonesia

    When markets become risk averse, economies with high current account deficits-CAD often find themselves facing external financing pressure, the ratings agency said

    Rating agency Standard and Poor’s (S&P) has cautioned that large deficit economies, including India and Indonesia could face more economic problems in the near term.


    "The road may be rocky in the near term, particularly for the largest deficit countries--India and Indonesia--but we don't think this is the Asian crisis all over again," said Paul Gruenwald, chief economist for Asia-Pacific at S&P.


    In a report titled ‘South and South-east Asian Economies Grapple with Growth and External Financing Risks’, the ratings agency said, the financial markets appear to be in the midst of pricing in a different path for US monetary policy. “During that process, we are likely to see bouts of volatility in emerging Asian economies, along with weaker currencies, lower asset prices, and subdued sentiment and growth. But, in our view, this is not a repeat of the 1997 Asian financial crisis,” it added.


    Observing that in normal times the countries with high current account deficit (CAD) and high savings might not find it difficult to borrow in the international market, the report said: “when markets become risk averse, economies with current account deficits often find themselves facing external financing pressure.’’


    India’s CAD rose to an all-time high of $88.2 billion or 4.8% of the GDP in 2012-13. During the current fiscal, the union government plans to bring it down to $70 billion or 3.7% of the GDP.


    High CAD is also affecting the value of rupee, which slipped to an all-time low of 68.75 to a dollar in the intra-day trade.


    On the positive side, the S&P report pointed out that domestically driven economies such as China, India, Indonesia, and the Philippines face lower growth risks than trade-dependent nations like Singapore and Hong Kong.


    Gruenwald said, "The external positions for the emerging Asian economies are much stronger. The central banks are also not defending their exchange rates. In addition, the increase in leverage over the past five years has been moderate in the economies with high external risks". 


    “The smaller, more open, more trade-dependent economies in Asia, such as Singapore and Hong Kong, have higher growth betas, or risks to growth. In contrast, the larger, more domestically driven economies such as China, India, Indonesia, and the Philippines have lower growth betas,” the report added.


    The report attributed the ongoing market turbulence largely to uncertainties around the timing of “tapering” (lowering bond purchases) by the US Federal Reserve, coincided with recent cuts in Asian GDP growth forecasts, most notably for China.


    Since the announcement of US bond tapering, the rupee has declined over 20%. Besides, equity market barometer Sensex dropped nearly 10% in the last one month.

  • User

    Food Security Bill: A Guide

    The Food Security Bill or FSB requires 62 million tonnes of foodgrains every year and will cost the exchequer Rs1.3 lakh crore per annum

    The Lok Sabha on Monday cleared the United Progressive Alliance (UPA) government’s ambitious Food Security Bill (FSB). The bill will now be considered by the Rajya Sabha (upper house). Here is a primer of on the Bill.


    Who will be covered?

    Up to 75% of the rural population (with at least 46% from priority category) and up to 50% of urban population (with at least 28% from priority category) are to be covered under Targeted Public Distribution System. Meals for special groups such as destitute, homeless persons, emergency/ disaster affected persons and persons on the verge of starvation will also be covered.


    Who and how will these people be identified?

    Number of persons to be covered to be on the basis of the population estimates as per the Census of India of which the relevant figures have been published. Within the coverage determined for each State, the State Government will have to identify households eligible.


    How much of food grains will be given, at what price?

    7kg of food grains per person per month to be given to priority category households which include rice, wheat and coarse grains at Rs3, Rs2, and Re1 per kg, respectively


    At least 3kg of food grains per person per month to be given to general category households, at prices not exceeding 50% of Minimum Support Price (MSP). After implementation of the proposed Act, about 75 % persons in villages will get wheat at the rate of Rs2 per kg and rice at the rate of Rs3 per kg. However, farmers will get more for their produce i.e. Rs12.85 per kg for wheat and Rs12.50 per kg for paddy as MSP. Food Security Allowance in case of non-supply of food-grains or meals


    How much of foodgrain is needed?

    FSB would require 62 million tonnes of food grain every year


    What would be the cost?

    The food subsidy bill would rise to Rs1.3 lakh crore per annum (1.2% of GDP), up from Rs80,000 crore currently (0.8% of GDP), or an additional fiscal burden of 0.3-0.4 percentage points every year.


    Who will meet the expenditure?

    Central Government will provide assistance to States in meeting the expenditure incurred by them on transportation of food grains within the State, its handling and Fair Price Shops (FPS) dealers margin as per norms to be devised for this purpose.


    What are the benefits to women and children?

    Women to be made head of the household for the purpose of issue of ration cards. Pregnant women and lactating mothers to be entitled to meals and maternity benefit of not less than Rs6,000. Children in the age group of 6 months to 14 years to be entitled to meals under Intergrated Child Development Services (ICDS) and Mid-Day Meal (MDM) schemes.


    Will there be a grievance mechanism?

    Yes. It is expected to be a three-tier independent grievance redressal mechanism at District and State levels. However, States will have the flexibility to use the existing machinery or set up separate mechanism.


    Who will ensure transparency and accountability?

    Social audit will be done by local bodies such as Gram Panchayats, Village Councils, etc.


    Other provision for transparency are: Public Distribution System (PDS) related records to be placed in public domain and Vigilance Committees

  • User


    Dr Anantha K Ramdas

    6 years ago

    I am new to this business. Can you tell me how one can get a licence to set up and operate a Fair Price Shop or a Ration Shop and ensure the government gives me the supplies on an uninterrupted basis?

    What is the margin of profit built in the price, because the government would be directing me to sell at a fixed price to help the poor? And how do I pay for the supplies to the government?

    Just curious how this works! Can someone give this info?

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