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Economy Aug 30, 2013

UPA’s legacy: Disasters like Food Security Bill and Land Acquisition Bill

By R Jagannathan

The Land Acquisition Bill passed by the Lok Sabha yesterday (29 August 2013) is named the Right to Fair Compensation and Transparency in Land Acquisition, Resettlement and Rehabilitation Bill, 2012. Quite a mouthful, that, but a misnomer. It is nothing of the kind. It should actually be named the Politicians, Bureaucrats, Crony Capitalists and Rent-Seekers' Right to Unjust Enrichment Bill, 2014, enacted in the name of the poor farmer ahead of the next elections.

For a country seeking to get projects off the ground to reverse the slowdown and the rising tide of economic pessimism, the Bill is just what the doctor did not order. Even quacks would not recommend such a pill for our economic ills. The Bill will ensure that any return to faster growth will be set back by at least five years, if not a decade.

The Bill, we all know, has the backing of Rahul Gandhi, just as the Food Security Bill, passed earlier this week, had the backing of his mother. The two Bills could, conceivably, get Sonia Gandhi's party get re-elected, but if that doesn't happen, the party benefits. The UPA is essentially lobbing a ticking-time bomb in the midst of the next government. The next government will be unable to reverse the Bill as any coalition will have landed vested interests in its composition. In short, the UPA is giving the next government the opportunity to commit suicide: poisoned food in the form of the Food Security Bill, or the option to step onto a landmine in the form of the Land Acquisition Bill.

Representational image. AFP.

Representational image. AFP.

Supporters of the Bill will claim all kinds of benefits for the poor, but in practice it will ensure that rent-seeking politicians and their cronies will corner most of the benefits at the cost of the poor and the country.

The salient features of the bill, as reported by Mint, are the following.

First, land cannot be acquired for any private projects unless they fall in the following categories: infrastructure projects, industrial corridors, mining, investment and manufacturing zones, sports, healthcare, transport projects, and space programme.

Second, even for private projects that pass muster from the above definitional angle, they will need the nod from 80 percent of landowners (70 percent for private-public projects).

Third, land can be acquired only at two times market prices in urban areas and four times market rates in rural areas.

Fourth, as if this high price is not enough, those losing land will have to get a house to stay, a one-time allowance, or a job or annual payments of Rs 2,000 per month for 20 years. And this payment will be adjusted for inflation.

Fifth, approvals and clearances will be needed at all stages from the state or various committees or bureaucrats. The social impact assessment of the project will be done by a committee, the state government will evaluate this, and all sales of land will need a final clearance from the state.

This kind of law is tailor-made for corruption and illegal gratification. Remember the licence-permit-quota raj? The entire state machinery was intended to create opportunities for rent-seeking behaviour by babus, netas and crony capitalists by putting obstacles in the way of those who wanted to set up businesses and create jobs.

The Land Acquisition Bill will replicate the licence-permit raj in the most fundamental thing required for any project - land, which is always in short supply. Consider the consequences:

Need approvals from 80 percent of land-owners? Private parties will bring in thugs and goondas to ensure that this happens. Every village will now develop political thekedars who will route money to the right hands among politicians.

Need a positive social impact report from the committee set up from the purpose? A few crores of bribe money will be helpful. Every corrupt babu will want to be on such committees.

Need the final nod from the state government? No prizes for guessing who will benefit the most.

Need to change land use from agriculture to infrastructure? More grease money will be required.

Will the bill ensure transparency and fair payments for farmers? No, it will make land deals less transparent. Fair payments will be few and far between. Some farmers are bound to benefit, but the chances are the richer ones will take over poor farmers' lands at throwaway prices before the land acquisition process actually begins. It is the big farmer, with surplus cash, and the big politicians, who will provide political cover for such loot, who reap windfalls by getting four times market prices, which will already be bloated by earlier purchases from smaller farmers.

Will any project be at all viable after the Bill? Unlikely. All projects - whether in urban areas or rural - will become enormously expensive and become unviable.

Will the major reason for the current slowdown - failure to clear projects - vanish after the Land Bill ensures "fair prices" to landowners and "transparency" in dealings? Businessmen are likely to shy away further from new projects, at least in the short run? As for transparency, what transparency can there be when every land deal will have to negotiate shoals of committees?

Will real estate prices come down, despite the fact that no one is buying property in overpriced urban areas? Fat chance. In most places, land accounts for the major part of property prices. So when the Bill seeks to double or quadruple costs, how will property prices come down? The next generation is doomed to live forever in rented houses - and rents will rise since new property is unaffordable. We will all be paying rents to benami property holders.

The Bill is so flawed that even members of Sonia Gandhi's National Advisory Council are not buying its intent. Mint quotes NC Saxena, NAC member, as decrying the Bill as being against the interests of farmers and industry. "It is pro-civil society and pro-bureaucracy because of the number of committees that will be needed to be set up under the Bill. It doesn't provide for land acquisition within a reasonable time frame, which means it will hurt farmers and the industry."

The case of the Navi Mumbai airport project - launched before the Land Bill was passed - is instructive.

Between 1998 and 2012, reports Mumbai Mirror, the estimated cost of the project has shot up from Rs 4,766 crore to Rs 14,573 crore - a tripling. The costs are rising at 10 percent a year, or Rs 2 crore a day. When land in adjoining areas costs Rs 15 lakh per hectare, those sitting on land the airport needs are demanding developed land worth Rs 50 crore a hectare as compensation. Is this about the small farmer or crorepati farmers?

The airport will simply be unviable. And just in case you think it is all in a good cause - the poor farmer - disabuse yourself. Most of the still unacquired private farmland has already changed hands. It is the big guys who will make a killing. But they will make a killing at our cost - as we are the airline users. We are also the taxpayers. So when an airport is unviable, we will pick up that bill too to bail it out, as we are doing in privatised Delhi and Mumbai airports.

This is not to say that the Land Bill is wrong in principle. Fair prices for landowners and a foolproof settlement and rehabilitation policy are vital. But what this Bill will ensure is humongous riches for the better off landowner and politicians, high costs for industry, and unaffordable home prices for a rapidly-urbanising India.

Sonia Gandhi is leaving behind food poison and land mines for the next government. But we need not shed tears for the next government anyway. They have acquiesced in this stupidity. They no longer have the moral authority to criticise the UPA.

by R Jagannathan

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