Land Acquisition for Infrastructure & Industry

NC Saxena, Distinguished Fellow, Skoch Development Foundation

Acquisition of land by government and corporates has lately drawn resistance in many cases due to inadequate compensation and loss of livelihoods of the affected people, as well as for involuntary displacement without proper rehabilitation. NC Saxena analyses the issues related to land acquisition in respect of the new laws and its impact on infrastructure and industry

Fast economic growth in the last two decades has increased demand for land from many sources, such as infrastructure, industry, resource extraction (such as mining) and urbanisation, including real estate. Even when many of these activities are funded privately and driven by profit motive, they serve a social purpose, as employment generation per unit of land is higher in non-agricultural uses than in agriculture. For instance, a 4,000 MW thermal plant may displace about 250 households but would create tens of thousands of new jobs by providing power to small industry and to tubewells that would increase both gross cropped area and productivity.

At present the share of urban dwellers in total population of India is around 31 per cent, but they occupy only 6 per cent of the total area of the country. Growth through industrialisation and urbanisation would not only increase labour productivity but will also reduce pressure on farm land by pulling people away from land to non-farming occupations. However, land acquisition has emerged as the most important structural constraint in India to the process of fast industrialisation and improvement in infrastructure. Delays in procuring land leads to uncertainty and cost escalation and thus affects development.

Acquisition of land by government has lately drawn resistance in many cases due to inadequate compensation for the land and loss of livelihoods of the affected people, as well as for involuntary displacement without proper rehabilitation. Moreover, the people are not willing to give up their present dwelling and occupation of farming for a dark future totally dependent on the vagaries of the market. The colonial land acquisition law of 1894 has been quite hostile to the interests of the landowners, as it attempts to make land available to industry through government at a minimal price. So far the practice in most states has been to coerce people to give up their land by using the legal powers of eminent domain and in some cases even through the use of force.

The most criticised section of the colonial law is the Urgency Clause. The clause never truly defines what constitutes an urgent need and leaves it to the discretion of the acquiring authority. As a result, almost all acquisitions under the Act even for private real estate, invoke the urgency clause. This results in the complete dispossession of the land without even the token satisfaction of the processes listed under the Act.

Thus the model followed has been, ‘let some people lose out so that others (this includes some enterprising poor too) may gain’. Unfortunately the losers tend to be the poorest with little skills, often tribals, who are unable to negotiate with the market forces and cope with the consequences of their forced expulsion from land and end up much worse off than before acquisition. Some estimates suggest that at least 60 million people were displaced between 1947 and 2004, amongst whom at least 40 per cent were tribals and 20 per cent Scheduled Castes. Of those displaced, less than 18 per cent were resettled. This has turned millions of independent producers into propertyless labourers, which could have been avoided with imaginative land acquisition and rehabilitation policies.

Conflicts over Forced Acquisition

Before 1990, most land was acquired by government for large irrigation projects, public sector enterprises and other explicit public purposes such as new townships of Chandigarh, Gandhinagar, and Bhubaneswar and therefore the use of coercive legal powers carried at least some credibility in the eyes of the public. In the last two decades however powers of eminent domain have also been used for acquisition for private industry and real estate, which is driven, not by the ‘noble cause of national development, but profit motive’. Though such private enterprises contribute to direct and indirect employment generation, people’s perception of these activities being in ‘public interest’ is generally negative, and therefore they are less tolerant of being made to leave the area or accept unfair compensation. Consequently, there has been growing protest and militancy leading to tension, conflict and violence, besides litigation that increases uncertainty and costs involved in delayed possession of land.

Low compensation is not the only cause for resistance. It is also because of trust deficit that exists today between the government and, the peasantry, because the promises made to them on earlier occasions for rehabilitation and settlement have not been fulfilled; and the compensation amount has been uncertain and irregular. Thousands of families displaced by various projects are still awaiting compensation payments. In a few cases, those displaced in early 1970’s are yet to receive compensation. In many cases the true beneficiaries are the absentee landlords and intermediaries, but not the poor peasantry.

New Land Acquisition Law

The problems discussed above have been addressed in a new law, called ‘The Right to Fair Compensation and Transparency in a Land Acquisition, Rehabilitation and Resettlement Act, 2013’, passed by the Parliament in September 2013. Rules for the operation of the Act was notified in August 2014. The new law not only substantially enhances compensation to the landowners but also tries to do justice to those dependent on that land by prescribing that each affected household including landless labourers and tenants who were dependent on the acquired land are either provided employment, or given a monthly sum of `2,000 (with statutory enhancement for inflation in subsequent years) for twenty years, or `5 lakh in lumpsum.

The new law makes a distinction between land needed for government needs and private (including public-private partnership) projects. The first category would include defence needs and projects for infrastructure, government run industry or mining activities, Government administered or aided educational and medical institutions and projects for residential purposes to the poor or landless or to persons residing in areas affected by natural calamities. In such cases consent of the affected landowners is not needed. However, if land is needed for private industry or real estate consent of 80 per cent landowners is mandatory. For public-private partnership projects this has been reduced to 70 per cent. For such projects including those by private companies, the Requiring Body would negotiate terms of rehabilitation and compensation with landowners and seek their willingness. The proposed terms and conditions informally agreed to between the Requiring Body and landowners would be communicated to district authorities who would make these available to each and every affected landowner in local language at least three weeks in advance of the meeting of administration with the affected landowners, where their formal written consent would be sought. All proceedings of taking affected landowners’ consent during land owners meetings shall be recorded in video and all the proceedings must be documented in writing.

For government projects, where consent is not needed, compensation would be double the market price for urban areas and two to four times the market value for rural areas, depending upon the distance of the acquired land from cities. Market value is generally determined by examining the sale deeds of similar land in that area, and as the written value in such sale deeds is much less than the actual market value (buyers and sellers do so in order to evade taxes), provision has been made to give much more than the registered sale value to the affected landowners, so as to ensure fair compensation.

Although cost of land and rehabilitation would vary from project to project, the total cost, which the industry will bear if land is made available to them without delay or litigation, would not be more than 2 to 5 per cent of the project cost. For instance, the total project cost of the proposed steel plant by a Korean firm POSCO is `540 billion and it will displace 700 households. If POSCO had decided to spend even 1 per cent on the displaced people, each one of them would have received `8 million as compensation. However, actual compensation that was being offered was just one to two million rupees leading to resistance and even violence. A 4,000 MW thermal plant would cost about ` 250 billion and would displace about 250 households. Thus earmarking just one percent of the project cost for acquisition could make each displaced family a crorepati!

The clause requiring consent of at least 70 per cent of the project affected people is highly welcome, and it should not scare the industry. Wherever the people are not willing to give their land or shift, it must be assumed that the fault is either in the package being offered, or in the progress of implementation or in the approach to the displaced communities. Alternatively, it could be because the implementation of resettlement and rehabilitation programmes in other cases has been so unsatisfactory that the affected people do not feel confident of receiving what they have been promised. In any case, this must be recognised as a failure of the rehabilitation process.

The new Act prescribes special safeguards for tribal communities and other disadvantaged groups, as no land (not even for government) can be acquired in Scheduled Areas without the consent of the Gram Sabhas. The Law also ensures that all rights guaranteed under protective legislations such as the Panchayat (Extension to Scheduled Areas) Act, 1996 and the Forest Rights Act, 2006 are taken care of. It has special enhancedbenefits for those belonging to the Scheduled Castes and Scheduled Tribes.

There are adequate safeguards against arbitrary displacement. The law provides that no one shall be dispossessed until and unless all payments are made and alternative sites for the resettlement and rehabilitation have been prepared. The Act even lists the infrastructural amenities, such as schools, playgrounds, health centres, roads, electric connections, and safe drinking water that have to be provided at the new site of resettlement to those that have been displaced.

In addition to cash compensation, the law provides for new houses for all affected families whose houses have been acquired, provided they have been residing in the affected area for 5 years or more and have been displaced. If they choose not to accept the house they are offered a one-time financial grant in lieu of the same.

Why not Lease Land in Place of Acquisition?

Section 105 of the new Act states that government is free to exercise the option of taking the land on lease, instead of acquisition. However, since this is a state subject, states should amend their tenancy laws to facilitate the entry of industry in the land market and promote willing buyer-willing seller transactions that will make the coercive provisions of the land acquisition law irrelevant.

There are two laws that need to be addressed to make leasing possible. In almost all states except Punjab, Haryana, Assam, Andhra Pradesh (but not Telangana) and Tamil Nadu, there are tenancy laws that do not permit land being leased to tenants for agriculture. Maharashtra goes a step further and even bans sale of agricultural land to a non-agriculturist. Second, in almost all states, there are provisions that agricultural land cannot be used for industrial purposes, unless written permission is taken from a designated authority, which is time-consuming and encourages corruption. Often politicians and land mafia operate as middlemen to facilitate getting the required permission from government for the change in landuse. Both these laws need to go.

A ban on leasing was imposed after Independence in almost all states to encourage owner-cultivation and to give security of tenure to sharecroppers and tenants. Although such laws should continue in tribal areas where agricultural markets are not well developed, in other states where the mode of production has become capitalist, there is a need to liberalise and free leasing-in of land from all government controls.

Studies show that the lease market facilitates a shift of control of land to smallholders and tenants. Big owners are found to lease out and the resultant distribution of operational area is less uneven than the ownership pattern. Thus, the lease market enables the landless to gain access to land that, in turn, enhances employment opportunities since poor farmers tend to saturate their land with inputs of labour. In areas experiencing technological change and high growth, marginal farmers may also gain by leasing out their area and taking up non-farm employment while still retaining ownership and the right to resume their control over the land after the lease period.

When I was Rural Development Secretary in the Government of India some 15 years ago, I wrote to all states that the time had come to repeal such laws and to permit leasing of land. The experience of Punjab and Haryana shows that free leasing has not brought back landlordism in a new garb, as was the fear that led to stricter control on tenancy. The states did not heed to my advice, however.

The second issue of freeing from all controls conversion of land-use for industrial purposes should also be addressed. As already argued, Industry serves a social purpose since employment generation per unit of land is higher in non-agricultural uses than in agriculture.

The argument that this would lead to food scarcity is bogus. Today, 60 million tonnes of food grain is lying surplus in government godowns while another 10 million tonnes of our grain is exported. So we have more than enough food for internal consumption and we can afford to change the land-use of our farm lands to non-agricultural to some extent, which will reduce pressure on the existing farm lands by encouraging non-farm employment.

Parliamentary Committee Recommendations

Beforethe enactment, the draft Bill was examined in 2012 by a Parliamentary Committee, which took a highly impractical stand and recommended that no acquisition should be done for private companies, and they should be forced to buy the entire land directly from landowners. Profit enterprises will have to purchase land in the open market. This recommendation may help farmers of the developed regions who are aware of the market conditions, but may result in large scale cheating and deception in tribal and remote areas where anti-social elements will be hired by the land mafia and tribals will be forced to sign land transfer deeds. In any case, in many central Indian states tribal land cannot be sold to non-tribals through market transactions. To get possession over such lands, industry would have to use extra-legal methods of showing sale in the name of some non-existent or compliant tribal. It may also legalise transfer of land that originally belonged to tribals, but is now alienated from them and has not been restored back to them despite laws to the contrary. Moreover, land records are hopelessly out of date in many states, which will delay private transfer of land. Often, land is cultivated by the poor, especially tribals, but their possession and ownership has not been recorded in the official documents. Such people would be compelled to give up their possession without any compensation.

Further, land purchased under “lawful contract” will not carry the responsibilities of Rehabilitation & Resettlement (R&R), which will deprive benefits that are proposed under the new Act to the landless livelihood losers. Besides, even in developed areas where farmers are aware of markets it is seen that small farmers are the first ones to sell to a buyer as they need immediate cash to meet other pressing exigencies and large farmers who delay their sale are able to get a higher price, often several times of what was paid to the small farmers.

Government has rightly rejected the recommendations of the Parliamentary Committee.

Negative Aspects of New Law

The main concern of industry should not be one time cost but the delay in getting possession of land, which causes the escalation in the project cost. A close examination of the Act would reveal that acquisition of even one acre of land would take at least three-four years and the proposal will have to pass through about a hundred hands. The delay is caused mainly because the bill seeks to establish several committees adorned by activists and “experts”. To begin with, for all cases of acquisition a Social Impact Assessment would be done by an Independent body and its report would be vetted by another Expert Group. In addition, there would be an R&R Committee, a State Level Committee and a National Monitoring Committee to pontificate over the reports generated by the junior committees. Delay in completion of formalities would also delay payment of compensation thus harming farmers and causing uncertainty in their rehabilitation.

A simpler solution would have been to delegate powers to the district Collector to acquire upto 100 acres of land without Committees and without any reference to the state governments. The Collector would obtain landowners’ consent and fix compensation through negotiations without any upper limit and thus make land available to the project in a few months’ time.

Often land values go up after acquisition and the original owners feel cheated when they find that their land after a few years is being sold for ten times the price that was paid to them. Therefore, whenever land acquired by government is transferred to an individual or a company for a consideration, a part of the appreciated value should be given to the original land owner. However, section 96 of the Act completely defeats the intention behind the idea of sharing capital gains with the landowner, as payment would be made only when no development has taken place on such land. The builder can plant one tree on that land and get away by not paying the original landowner any capital gains!

Compensation to the affected households should have been also when forest lands and water bodies are resumed by government and passed on to private bodies. In the absence of this clause the poorest people as users of common land and forests and slum dwellers will be deprived of their livelihoods without any R&R benefits. This amendment is particularly relevant in view of the state governments’ reluctance to implement the community clauses of the Forest Rights Act, 2006.

Review by the New Government

It is hoped that the new government, which came to power in May 2014, will take steps to reduce the delay and thus cut down on unnecessary costs by simplifying the procedure so that land is available to the Requiring body as early as possible and at the same time ensuring that the affected families are fully compensated and properly rehabilitated. They too should benefit from the project, so that parting away with their land and assets no longer is seen as a trauma by them in future.

There are media reports to suggest that the new government is mulling over doing away with the consent clause for PPP projects, which currently need consent of 70 per cent of landowners, and reducing the consent requirement for private projects from 80 per cent to 50 per cent. It may also drop the mandatory social impact assessment prior to land acquisition that judges its essentiality and identifies both land and livelihood losers, at least for linear projects or where total land acquired is, say, less than 100 acres.

One should keep in mind that the price of land acquisition has two elements. One is the direct price paid for acquisition, and R&R which goes directly to the affected households. Think of this as the cash component of the acquisition price. The second element is an indirect price. This includes transaction costs (such as the cost of doing social impact assessments, running the massive new multiple-layered acquisition bureaucracy, and so on), and opportunity costs, which arise from the time taken to conclude an acquisition, time during which capital is not invested and production does not take place. The effort of the new government should be to retain the direct costs and drastically cut down on the indirect costs.

To sum up, the 2013 law completely replaced the colonial Land Acquisition Act, 1894. The new legislation ended the era of forcible acquisitions, enhanced compensation for both land-owners and landless families significantly, provided for the essential resettlement and rehabilitation of families displaced on account of land acquisition, curtailed the abuse of the “urgency” clause, gave farmers a share in the appreciated value of the acquired land and gave village councils new powers to decide on land acquisition. There is still room for improvement so that the whole process is not dilatory and does not retard economic growth.

(The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of INCLUSION. Comments are welcome at

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