Ground realities

In its recently released election manifesto, the Indian National Congress sought to take credit for passing the land acquisition act in August 2013:

The seminal Right to
 Fair Compensation
 and Transparency in
 Land Acquisition,
 Rehabilitation and
 Resettlement Act,
 2013 – a key campaign
 promise of the
 Indian National Congress in 2009 – was enacted after two years of nationwide consultations. This law was a historic victory for our brothers and sisters working in the agriculture sector. The law ensures that land cannot be acquired without the land owners consent, promises up to four times the prevailing market value as compensation and repeals the Land Acquisition Act of 1894.

The idea is that a transparent and easy to follow land pricing policy will prevent the recurrence of conflicts over price in transactions in which the state forcibly acquires land from farmers on behalf of companies (that forced the Tatas out of Singur, for instance).

The land acquisition act has attracted some favourable media commentary, but by and large analysis has been critical. In a column titled “The UPA’s worst legacy“, Business Standard Editorial Director TN Ninan asserted that this law was perhaps the UPA’s most economically damaging policy:

The land law stipulates that forcibly acquired land must be paid for at two to four times these market prices, in addition to other relief and rehabilitation costs. So the new law will make land acquisition next to impossible, or unaffordably expensive (which becomes the same thing) in most states. And since development unavoidably means projects that require large bits of contiguous land (railway lines, roads, irrigation canals, power stations), it means that development itself could be slowed down.

It’s not just thoughtful commentators like Ninan who feel this way. Economist and former Federation of Indian Chambers of Commerce and Industry (FICCI) secretary general Rajiv Kumar was so incensed that he tore into an obsolete, previously discarded version of the land bill in a Financial Express column “Land Bill a mortal blow to India’s modernisation“.

I won’t get into the details of this legislation here except to say that my own view of the land acquisition act is closer to what Vinayak Chatterjee, the chairman of infrastructure consultancy Feedback Infra, argues in his Business Standard column “Land and the greater common good.”

The data analysis angle is this: There is a general consensus in the investment research community that the negatives of the act (viz. higher land costs for industrial projects) are eminently manageable and will have a minimal impact on project returns. This is a conclusion that has been derived after careful study of company balance sheets and cost structures. Yet if you read the media, the land acquisition act is presented, more often that not, as Exhibit A in the “UPA killed the India growth story” narrative.

Here’s what Kotak Institutional Equities thinks:

Screen Shot 2014-03-22 at 2.15.05 pm

And this is what UBS Investment Research has to say:

Screen Shot 2014-03-22 at 2.15.19 pm

The end of the “India growth story”? Not even close.

 

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