Wednesday, September 14, 2011

Land Acquisition Bill - a backlash against corporate greed and government corruption?

After years of debate, the Union Cabinet finally approved the new Land Acquisition Bill, which is to replace the 117-year-old Land Acquisition Bill, 1894, and which for the first time integrates both land acquisition and relief and rehabilitation (R&R).

It mandates that compensation be paid at the rate of four times the land value in rural areas and twice in urban areas. It also requires the consent of a minimum of 80% of landowners if the land is being acquired for private companies for public purposes. It also mandates that for the next ten years, 20% of the appreciated value of the land be shared with the landowners every time the land is sold or transferred.

On the whole the Bill provides ample safeguards for both landowners and livelihood losers. Its generous R&R provisions even extend to lands purchased privately. It makes R&R mandatory if private companies buy 50 acres or more in urban areas, or 100 acres or more in rural areas. It also reserves 20% of the developed land for landowners as part of rehabilitation entitlement, and subsistence allowance for 12 months and annuity for 20 years.

Industry representatives have criticized these provisions as being too generous and claim that it would sharply increase the cost for developers. They argue that it will inflate the business costs for housing, mining, metal and infrastructure sectors.

The Bill seeks to strike a delicate balance between the need to protect the interests of landowners and livelihood losers and the imperatives of industrial development and urbanization. However, on the balance, it clearly errs on the side of caution and goes considerable distance to protect the interests of land and livelihood losers. Without going into the merits of either view, it needs to be acknowledged that the events of recent past had left the government with no option.

The egregious unfairness of some of the high-profile cases of land acquisition for commercial real estate development had made it impossible for any government to be seen to be favoring corporate groups over the land losers. In fact, the provisions of any proposed Land Acquisition Bill had to be openly favorable to those losing their lands for it to stand any chance of passing the Parliamentary process. Development or not, the interests of the "victims" had to over-ride those of the "beneficiaries". The prevailing anti-corruption environment made the balancing act even more difficult.

An important point that needs to be internalized from this whole process is the damage to incentives caused in recent years by the short-sighted and greedy demands of industrial groups and their complicit governments. As the skeletons from the closet of scams have shown, corporate India is as much, if not more, culpable for escalating corruption to its new levels.

In the first flush of liberalization, over the last two decades, the country has witnessed a massive spurt in private investments. The Union and State governments have rolled out the red-carpet, provided extraordinary concessions, and welcomed these investors claiming them as harbingers of economic growth and new jobs. Businesses played up the importance of these concessions, even locking state and local governments to compete with each other to attract them.

In the process, governments threw aside all semblance of propriety and principles of natural justice to favour private interests at public cost. The notification for acquiring lands under the Land Acquisition Bill, 1894, had become the most visible symbol of this degeneration. The booming property prices across the country and examples of re-sale at many times the acquisition value added to the real and percieved sense of injustice among the "victims".

All the stakeholders, except the land losers, benefited - corporates got land at throw-away prices (which in turn inflated their profitability), governments could claim credit for bringing development, and politicians and officials expropriated massive rents for these favours. Everyone, including all the first-level names in corporate India, knew about these nefarious and blatantly unfair dealings. It is plain hypocritical to now turn around and profess surprise at the spectacular rise of crony capitalism in India over the last decade. Having sown the wind, the industry is now reaping the whirlwind.

This is a classic case of public policy and corporate greed elevating short-term private benefit over issues of longer-term sustainability. Corporate India failed, or conveniently refused, to acknowledge that their plunge to make a quick buck through crony capitalism was unsustainable in any democracy that lives on multi-party electoral politics. Once the backlash began, the incentives of the same political class, who were their earlier partners, now tilted south. Faced with uncertainty at the hustings, they have gone the other extreme and embraced populism.

This phenomenon cannot be confined to land acquisition, but would cover all examples of blatant misuse of power and private profiteering at public cost. Let us leave aside all talk about corporate India assuming leadership in development, since we are far away from that. But speaking a language they better understand, it is in their own interests that their actions do not dramatically unsettle the incentives of any stakeholder to their transactions. If that happens, then the inevitable dynamics of India's populist electoral democracy will surely strike back and push development even further back.


Anil Nilugonda said...

it is also really important to devolve the power to the locals and which they feel jobs are the important thing than compensation, informing villagers of their land rights and the laws that protect them could give them the means to put more effective pressure on the officials. A rural citizen who is getting buried because of two big evils of Corporates and government. the crux is who benefits. there has to be a balanced approach and each case is different.

KP said...

Dear Gulzar,

To be fair - the legislation should also include a windfall tax on those that benefited from an unfair regime of grab and run - reit firms / industrialists etc.

However, as always, blatant corruption is always met with blatant silence - and like a good indian movie - the law will take its course - in this case there will be a law - only in the dying moments!

regards, KP.