Why corporations still struggle to find land to set up manufacturing bases?

Right to Fair Co­mpensation and Transparency in LARR Act mandates that any acquisition of land for any project, including infrastructure, must in­clude a mandatory social im­pact as­sessment, and the provision of a consent clause
Japanese companies at a video conference with Uttar Pradesh government this month had only one question. “We had sent them a detailed dossier after getting inputs from the Indian embassy, highlighting stuff like road connectivity, power supply, but they were interested in our response to only one issue — land,” said a UP government officer. State Investment and Export Promotion Minister Siddharth Nath Singh played very safe and offered only those plots with ownership vested with the state Revenue Department. A month ago, it was the turn of Haryana Deputy Chief Minister Dushyant Chautala to field the same questions from another set of investors. Around the same time on behalf of some European companies that explored the Indian market re­ce­ntly, their embassies have asked for this one response from the states — on availability of land.

This appears to be the bi­ggest hurdle to the National Democratic Alliance’s aim of making India the next global factory. The issue of acquiring parcels of land for factories has unseated politicians and governments and even forced a powerful Pri­me Minister like Na­re­ndra Modi to backtrack on an or­dinance. For instance, a decade ago then UP chief mi­nister Mayawati had loosened land laws to encourage industry and real estate development. She is still fighting court battles on charges of corruption in altering the land-use laws.

Land laws have been difficult to cha­nge. Yet it was one of the first factor markets where the Indian state began experiments in rule change in the first decade of the 21st century with plans for special economic zones. That was a spectacular disaster. Kaushik Dutta, fo­rmer India management team at PwC who sits on several company boards, says, “Land is a sweetheart deal from the state when it is in an industrial es­tate — for lease or sale. Beyond that, other than real estate developers no board will want to touch it.”  

Companies, Indian and foreign, have discovered that there are still no developed markets for land. Under the Co­nstitution, land can only be legislated upon by the states. In the past, this paradoxically helped entrepreneurs get away by paying less than the fair value of land by the simple expedient of cronyism. Till 2013, states used the Land Acquisition Act of 1894 to acquire land at rates for industry that forbade price discovery. It meant that if a parcel of land was to be acquired and the value of adjacent parcels of land rose in expectation, this rise was to be discounted in the calculation of the value of the land (the acquisition of land for the Tata Nano factory in Singur, West Bengal, which unseated the Left Front government after 34 years, is a case in point).

As the private sector be­gan to take centre stage in manufacturing after the end of the Licence Raj, this elimination of market forces became contentious and led to calls for more protection for land-losers. The United Progressive Alliance government ob­liged by legislating the Right to Fair Co­mpensation and Transparency in Land Acquisition, Rehabilitation and Re­se­t­t­lement (LARR) Act in 2013. It mandated that any acquisition of land for any project, including infrastructure, must in­clude a mandatory Social Im­pact As­sessment, and the provision of a consent clause (at least 80 per cent for all private projects and 70 per cent for those under the public-private partnership route).

Section 107 of the LARR Act confers on states the right to enhance entitlements and compensation. So far, 11 states have taken advantage of this provision to modify the application of LARR Act in favour of the seller, but at least three states — Karnataka, Tamil Nadu and Maharashtra — have moved to enable direct industry-farmer transactions. Karnataka has been the most ambitious, passing an ordinance to amend its Land Reforms Act, 1961, al­l­owing industry to buy land directly from farmers. Farmers and political groups have immediately challenged the ordinance. Other states will be keenly wa­tching the developments before they move the needle.

All three states are industrially ad­vanced and have found it useful to keep the application of LARR Act in abeyan­ce. The Centre does not maintain a database of land acquired since the LARR Act was passed, but it appears that acquisitions have only been possible under the carve-outs created by the sta­tes that have modified the mother Act. Maharashtra’s ability to get land for the Bullet train project is a case in point. But that too is not fail-safe — the near abandonment of the West Coast refinery due to farmers’ agitation is an example.  In fact, companies have obtained more la­nd from bankruptcy courts recently. When a company like Essar Steel goes down under, its land parcel is a valuable asset for the acquirer, in this case Ar­celorMittal/Nippon Steel. Essar wanted to sell 1,000 acre at Paradip even as the bankruptcy case was on (it did not succeed).
In those states where there the model LARR applies, land acquisition has sta­lled. In Bihar, for example, an ADB-financed road project status report from 2018 shows only 62 per cent of the land needed for the project has been acqui­red in four years.

But the central problem remains: that no state has moved to create a vi­able market for land. A market for land would actually reduce the cost of transaction by those whose principle economic asset is a piece of land. In most cases land-related suits brought before the Supreme Court, the litigants do not question the locus standi of the Centre or the states to acquire land, but the price at which it should be bought.

For the market to take off, one needs scientific land records, without which small landholders have to either bribe local officials or take lower price for leasing or selling their land. The Centre has made some progress here, principally in preparing cadastral maps under the Rural Development Ministry-run Digital India Land Records Modernisation Pro­gramme (DILRMP). Some 90 per cent of the records across states have been computerised and about 53 per cent of India’s land mass has been surveyed by a combination of space technology and on-ground matching.

But as both Singh and Chautala discovered, convincing investors that land parcels are easily available is a tough call. There are as yet few success stories available to convince investors that India can be the alternative factory to the world.

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