Marauders and acquisitions

Land acquisition has become a bottleneck for several industrial and commercial projects, including, famously, the Nano project in West Bengal. The acquisition is carried out in India through the Land Acquisition Act, 1894, which specifies that the acquisition must be for a “public purpose”. The term “public purpose” includes village sites, town or rural planning, residential projects for the poor, planned development (education, health, housing, slum clearance) or land needed by a government corporation. The compensation paid is determined by the current price of the land and does not take into account any increase due to change in the land-use. Put simply, if agricultural land is being acquired for a commercial project, the price paid will be computed based on the prevailing market price for agricultural land. The act provides compensation only to those who had title to the acquired land. Others affected by the acquisitions — landless labourers working on the land, tenants, tradepersons servicing the local economy, etc — are not entitled to any compensation. 

The Land Acquisition (Amendment) Bill, 2007, introduced in Parliament last December, makes five significant departures from current law. First, it redefines public purpose as including by a company for “any other purpose useful to the general public”, provided the company has purchased at least 70 per cent of the land required through normal market mechanisms. Second, it changes the method for computing the compensation. The price is linked to sale price in the vicinity. Importantly, the intended use of the land and the value of such land in the market must be factored into the computation. In case the acquisition is for a company, 20 to 50 per cent of the compensation must be offered as shares or debentures. The seller has the choice of accepting this offer or taking a full-cash settlement. Third, the land shall be returned to the government if it is not used for five years from the date of possession. And in case it is transferred, 80 per cent of the capital gains must be shared with the original land owners and their heirs. Fourth, the bill specifies that all persons displaced by the acquisition process — including those who did not own any land — would be rehabilitated and resettled. The process for this is detailed in a companion bill, the Rehabilitation and Resettlement Bill, 2007. Fifth, a land acquisition compensation disputes settlement authority is to be set up with civil court-like powers, which has to adjudicate all disputes within six months. 

If this act is passed, there would be major changes in the process. Any company wishing to undertake a commercial project would first have to purchase at least 70 per cent of the required land. As these would be contracts with willing sellers, the price would presumably be fair to both sides. The provision for forcible acquisition of the remaining land ensures that projects can acquire contiguous land. The price for these acquisitions, however, would be linked to the price of the land purchased from willing sellers. The price is also linked to intended land-use, and the seller shares in the gains from any change in the status of the land. The act also provides for longer-term gains to the seller from any upward move in the company’s share price. It deters acquirers from speculating on land by restricting any gains from the resale of land. The rehabilitation of landless persons who are displaced due to acquisitions is also provided for.

MPs must consider a few loopholes that the act does not address. The disputes settlement authority could, inappropriately, be entirely manned by bureaucrats (from the state government which would be the acquirer in many cases). Compensation may also be offered as debentures, so the land acquirer would be effectively lending money to the company to purchase his land. The provision that 80 per cent of capital gains should be shared with the original owners or their heirs would be difficult to implement with the passage of time. In addition, the companion bill that provides for rehabilitation and resettlement suffers from one serious constraint — the language used for many of the benefits is non-binding in nature, and this could result in several benefits being denied. The proposed changes, though welcome, need more than good intentions to be effective.

The writer is at Parliamentary Research Service, New Delhi

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