India’s Land Acquisition Law – What Investors Need to Know
Land acquisition is a major bottleneck for companies looking to invest in India.
The difficulty of acquiring land in a reasonable period of time has tended to discourage investments in manufacturing and the development of industrial corridors and transport infrastructure in India, where land is a critical factor. The country’s multiple land laws are not well defined and have often ended up causing legal disputes and delays.
According to a recent study by the New Delhi-based think tank the Center for Policy Research (CPR), there are more than 1,200 laws related to land, alongside about 150 federal laws in just eight of India’s 29 states.
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013
Until 2013, land acquisition was governed by colonial-era legislation – the Land Acquisition Act of 1894.
The UPA government introduced the landmark Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act (the Act) in 2013, to ease restrictions for projects in five critical investment areas: defense and defense production, rural infrastructure, industrial corridors, and social infrastructure projects such as Private Public Partnerships (PPPs).
However, since its enactment, the state governments and investors have reported many procedural difficulties with the acquisition of land required for important national projects:
The consent clause
The consent clause in the Act requires approval from 80 percent of the affected families in the case of acquisition by private entities executing public purpose and 70 percent from public-private partnerships (PPPs) executing public purpose.
No consent is required when a public entity is acquiring the land for a public purpose.
Private entities and SC/ST
All acquisitions for private purpose require companies to provide rehabilitation and resettlement to the people affected by the acquisition.
In case of scheduled tribe (ST) and scheduled caste (SC) owners, the companies must provide one-third compensation for the project before the land acquisition, and the rest after the process is completed.
The government can only acquire their land under exceptional circumstances and that too with the prior consent of a local body or Autonomous District Councils. Further, the development plan for the project must be launched within five years to ensure their livelihood is not affected.
Compensation for the owners of the acquired land shall be four times the market value in case of rural areas and twice in case of urban areas. The law also requires companies to give one-time payment to the affected artisans, and small traders, even if they don’t own any land.
Social impact assessment
The process for land acquisition involves an SIA survey, a preliminary notification stating the intent for acquisition, a declaration of acquisition, and compensation to be given by a certain time.
Under the SIA, the government must obtain the consent of the affected artisans, laborers, sharecroppers, and tenant farmers among others, whose (sustainable) livelihood will be affected because of the given project.
The social impact assessment makes the process of land acquisition slow, and more expensive.
Land left unused after the acquisition
In case the acquired land remains unutilized for five years after the acquisition, the Act empowers states to return the land either to the owner or to the state land bank.
Given the complete process and complexity involved, many industry bodies and consultants estimate the entire process to take about 56 months to complete.
State land policies
The 2013 Act’s lengthy process and costs have raised concerns among industrialists and businesses.
Due to a lack of clarity on central land acquisition provisions, several state governments have come up with their own alternative land policies to make it easier for investors to acquire land. These are Gujarat, Madhya Pradesh, Uttar Pradesh, Telangana, Andhra Pradesh, Rajasthan, Haryana, Delhi, Bihar, Maharashtra, and Jharkhand.
The Gujarat and Telangana government have exempt several projects from SIA and mandatory consent of landowners. These include affordable housing, industrial corridors, projects of national security, defense, rural infrastructure, and other projects under PPP.
In Maharashtra, PPP projects have been fully exempted from the SIA and consent clauses. Telangana, Uttar Pradesh, and Andhra Pradesh, on the other hand, have all reduced the notice period for public hearings under SIA from three weeks to one week. In Jharkhand, the quorum for seeking consent from the Gram Sabha has been reduced from half to one-third.
Despite these state-level efforts, the legal challenges in acquiring land remain.
The Supreme Court of India recently issued a notice to five state governments – Gujarat, Andhra Pradesh, Telangana, Jharkhand and Tamil Nadu for amending their respective land acquisition laws and diluting the provisions of the original 2013 Act.
A legal trial such as this threatens to increase troubles for industries and investors already reeling under India’s complex legal procedures to acquire land, encroachments, land conflicts, and political uncertainties that cause project delays, cost over runs, and business uncertainties.
The sheer number of concerns and complexity associated with India’s land laws illustrate the importance of diligence in pre-investment market entry studies for foreign investors.