Will it be easier for India Inc to set up infrastructure projects in 2013?

Last Updated: Sun, Jan 06, 2013 05:10 hrs

One thing that could change in 2013 is the way land is acquired in India for industrial projects, provided the Land Acquisition Bill becomes law.

If land acquisition in the past was marked by conflicts between landowners and acquirers, industry officials say the new legislation is unlikely to make things easier for corporations to acquire land for big ticket projects. Activicts, on the other hand, caution against cetain provisions of the Bill, saying there's lack of clarity.

The Bill has been drafted with an aim to reduce conflicts. It provides clarity on compensation and rehabilitation and also subjects every acquisition for private projects to the requirement of consent of up to 80 per cent of the landowners.

The necessity to get the consent of 80 per cent of landowners for any acquisition would make the acquisition process extremely slow, say industry leaders. The rehabilitation and resettlement (R&R) cost would also weigh heavy on industry.

"The cost of land acquisition in the country is likely to increase by 3 -3.5 times, severely affecting the viability of industrial projects across the board and this may erode competitiveness of the Indian manufacturing sector and making it difficult to set infrastructure projects. The R&R cost is also likely to go up by about three times, compared to the prevailing practice," says Chandrajit Bannerji, director general of the Confederation of Indian Industry (CII).

In the last few years, 35-40 million tonnes (mt) of steel capacity addition has been postponed, primarily due to hurdles in land acquisition. Apart from an increase in project cost, the bigger stumbling block is securing 80 per cent consent from land-losers, which currently is at 50-60 per cent.

"It will be impossible to take industrialisation forward. Project cost is going to increase, but even if the company is ready to pay, the 80 per cent clause will have a severe impact on industrialisation. Large projects don't have a future and the situation will worsen," says Nittin Johari, finance director, Bhushan Steel.

Bhushan Energy Ltd has a 2,600 Megawatts power project in the pipeline in Orissa, which will require about 2,000 acres. "We haven't started anything. The project is subject to land availability," Johari adds.

From 2005, around 222 memoranda of understanding had been signed by steel companies for setting up plants involving an investment of Rs 630,000 crore, 90 per cent of which are accounted for by the private sector. The steel sector is intrinsic to infrastructure development and requires large tracts of land.

According to steel industry representatives, 54 per cent of the planned investment for the 12th Plan (2012-17) would be channelised into construction projects. "Assuming 10-15 per cent of this spending would be on steel, additional steel demand from infrastructure alone could reach about 90-140 mt," says a steel producer, who declined to be named.

However, if capacity addition is stalled for want of land, then it would be met through imports. "The track record of project completion in the 11th Plan suggests that actual investment would only reach to about 50-60 per cent of planned," the steel producer adds.

The Federation of Indian Chambers of Commerce and Industry points out that the provision in the Bill to start a project within five years was impractical. "Large/ultra-mega projects cannot be expected to start within five years.''

Activists feel the Bill may be tough for those who follow it, but offers enough loopholes for those who wish to circumvent it.

Campaign for Survival and Dignity, which works among forest dwellers, says the Bill, for instance, allows acquisition of community forest lands, which is in conflict with the Forest Rights Act. That would thus ensure conflicts of the kind witnessed over the Posco land acquisition, says Shankar Gopalakrshnan of the campaign. The Bill says monetary compensation can be given for such land. But it does not say who will fix this compensation, he adds. Yudhvir Singh of Bharatiya Kisan Union says the consent clause is welcome, but there could be conflicts where people are denied market rates.

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