Thursday, August 29, 2013

Land acquisition will help everyone including industry….

The Land Acquisition Bill was passed by the Lok Sabha yesterday. Given the broad political support for the bill, it is likely to clear the Rajya Sabha as well. The bill has been dubbed “populist” and “vote catching” by the media. It has also been dubbed “anti-industry” by….who else….industry. Yes, the new bill will cause land acquisition costs to go up. But lets for a moment think about all the good it will do for the poor, the country…..and equally, to industry.

For the poor:

This is a no-brainer. The poor will get far better compensation than at present, at 4x market rates in rural areas and 2x in urban. The R&R measures also are quite rewarding, with a house being assured, a lump-sum payment to boot, and a job in hand as well. Besides, the process of acquisitions will be more consultative, with consent of 80% of owners mandatory.

For the country:

a)    Industrialization will spread wider: Industrialists will be forced to move further away where land prices are cheaper. Remember China is still struggling with this, with most of its growth concentrated in the East.
b)    Social unrest will be arrested: Rising income disparities, lack of employment opportunities and in general, poor living conditions, could lead to social unrest in the rural areas. The genesis of the Maoist movement is often attributed to these same factors. Again, look at China. The biggest threat to China’s sustained growth in the future is social unrest, as trampled-upon folks rise in protest against an authoritarian regime. We are a democracy, and the biggest advantage of that is that such “populist” measures actually nip future problems in the bud.
c)     Reduce law and order problems: One of the reasons for increasing law and order problems in the urban areas is the uncontrolled migration of the rural poor. If these people are retained back in their villages by jobs that are created (an R&R condition), then that will provide a relief. Further, several land owners who make a windfall from land deals end up becoming criminals when their booty runs out. Hopefully, if industry provides employment to the displaced, and re-skills them, these people will not turn to crime.
d)    Value addition in industry: At present, in most cases, Indian industry gains from labor and other cost arbitrages. Labor costs are low here, as are other costs including land. When these costs rise, industry will become uncompetitive and will be forced to vacate lower-value-add sectors and migrate to higher-value-add ones. This will improve India’s competitiveness in the long run. It will surely cause initial pain, as even the opening up of the economy caused in 1991, but just like then, the pain will be temporary.

For industry:

a)     Easier acquisition: Hopefully, land acquisition will become easier through clarity in policy. Multi-crop land can be acquired if the states choose to allow. Pricing formula is pre-determined. Land-owner protests against acquisitions will be less because of the strong economic incentive for them. Industry is worried about the “social impact assessment” – and it’s a fair worry – and the government must alleviate these worries through time-bound and objective-led processes.
b)     Far less politics: Hopefully, industry will be able to choose land more scientifically, rather than on the basis of political considerations as it has to today. The Tatas wanted land in WB, but had to go to Gujarat because one state government was stupid, the other savvy. Industry will still choose where they set up industry basis sops offered to them by state governments, but availability/pricing of land will hopefully not be a consideration.
c)      Transparency: If there is one thing industry hates (especially MNCs, who are governed by stiff anti-corruption laws in their country), it is the lack of transparency and the under-the-table dealing that it leads to. Hopefully, the new law will bring in transparency, making life easier. This should also help reduce corruption in the country.

Industry’s biggest worry is about costs going up. But because of transparency, and lesser protests, I think overall it will end up gaining. Hopefully again, if industry adapts to the pain of higher costs now, it will emerge stronger in competency later. Industry knows that anything that comes free depletes competitiveness and vice versa. China is going through the same pains but it will manage. As will Indian industry.

The real truth is that the Land Acqusition Bill will bring in a revolution – social and industrial – in the country. But most of all, it will secure our democracy. When rural areas prosper, India will prosper. No country where the rural areas have been neglected has prospered….

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