The important characteristics of the new law, which goes against the entrepreneurs, are the punching of rehabilitation and resettlement (R&R) obligations with the land acquisition. In no country, similar R&R obligations are imposed to acquire land for industrial purposes. Given the situation, how will the new law enthuse the entrepreneurs to set up their factories? The Rural Development Minister tried to pacify the investors that the new law was not against industrialisation as there was no bar on purchase of private land. But, the R&R obligations on the purchase of land will be a major exacerbation.

The new Act comprises four categories of land acquisitions. First, purchase by the Government for its own purpose; second, purchase by the Government for private companies; third, purchase by the Government for PPP projects and fourth, purchase by the private companies. In case of purchases by Government for second and third categories, the consent of affected landowners, especially farmers, are required to be obtained. For second category, 80 percent consent and for third category 70 percent consent are to be obtained. In addition, all the three categories are subject to R&R obligations. In case of fourth category, R&R obligations will be decided by the threshold limit set by the State Governments. If the private purchases exceed the threshold, the private companies will be subject to R&R obligations.

How will these both regulations of land acquisition and R&R be palatable for the private entrepreneurs. The thumb rule for manufacturing activities, emanated from Chinese model, is that while entrepreneurs pour money, provide technology, generate employment opportunities and increase supply capacity, Government provides land and infrastructure facilities. The R&R riders will cast shadow over State Governments’ land acquisition programme, who are the ultimate institutional bodies to set up industrial sites and towns. This will cause enormous delay in the process of land acquisition and make the task uphill to create land bank for the private entrepreneurs. Further, many a time big Investors, including foreign investors, require bigger plot of land for heavy capital base industries, such as steel, refinery, automobile, heavy machinery etc. The R&R obligation will act as negative spillover on the initiative of the State Governments to acquire land for such big private projects.

India has embarked on National Manufacturing Policy. The aim of this policy is to jack up manufacturing share to GDP to 25 percent (currently 16 percent) and make India the manufacturing hub for the global investors. The country is now viewed an alternative destination for manufacturing after China is losing sheen because of higher wages on account of currency fluctuations and the slump in global export market. The new law will act as deterrent to the National Manufacturing Policy. For instance, one of the current major initiatives to gear up manufacturing activities in India is the setting up of industrial corridor projects. Delhi Mumbai Industrial Corridor (DMIC) project is one such project wherein a large area will be developed with infrastructure facilities, covering six states in the western part of the country. Unfortunately, while all the major related issues such as financing, planning and the area to be covered are almost complete, the project is still at the drawing board stage because of land acquisition problem. Land acquisition was held up because of the delay in new land acquisition law. Now, the R&R obligation in the new law will add more woes to the land acquisition process and will cause further delay in the project. The MoU of the project was signed in 2006.

The new law will also cast shadow over the foreign investment, which has now become integral part of the investment in the country. The foreign investors will be discouraged by the inordinate delay in getting land for setting up their factories. No foreign investor acquires land by itself, instead depending upon State Government intervention in land acquisition. R&R riders will make the State Governments wobbling with uncertainty in delivering the land to the foreign investors. As a result, the foreign investors will be inclined to pour money more in merger & acquisition than in Greenfield projects. The cascading impact will be loss of employment opportunities in the country.

Domestic entrepreneurs alleged that the land prices in India shoot up after the National Policy on Rehabilitation and Resettlement in 2007, which was invoked to protect the interests of the farmers. In contrary, the land prices in India are cheaper than major manufacturing hubs in East Asia and South East Asia – even cheaper than China. According to a JETRO survey, in 2012, against the average land prices of US $ 35-36 per square metre for four industrial zones covering New Delhi & its surroundings, Mumbai, Chennai and Bangalore, the average land prices for industrial zones per square metre in three main cities in China, covering Beijing, Shanghai and Guangzoh, were US $ 67-68, in Bangkok (Thailand) it was US$ 120; in Manila (Philippines) it was US$ 65 and in Jakarta it was US$ 191.

Therefore, India augurs well for greater opportunities for investment. But, the R&R obligations will distort the competitive advantages. No investor will like to wait for uncertain period for the land. Given the edge in international competitiveness for land prices, a proportionate rise in land price, which will compensate R&R obligation, is warranted more than clubbing with R&R riders. (IPA Service)