Higher compensation for land acquisition: The changing landscape

“There’s a perception that land acquisition is not (happening). But actually on the ground level, things are different. Now, because of whatever reasons, land acquisition costs has increased. In my own department, we are spending close to Rs 60,000 crore every year on land acquisition. Cost has increased but now people are coming, the delegations, that acquire our land. We are constructing the four-lane cement concrete road from Mumbai to Goa where many delegations come to meet and say please acquire our land. So land acquisition is not an issue,” Gadkari said at an Asian Infrastructure and Investment Bank’s (AIIB) event.

There are two main reasons why land acquisition constraint is easing for the road projects. One, rising compensation for land means landowners get higher price than they could obtain if they their sell their holdings in the market. Since January 2015, when the First Schedule to the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (RFCTLARR) Act, 2013, kicked in, land costs have risen sharply.

Land acquisition costs for highway development, measured in terms of compensation paid for every hectare of land acquired, has shot up from Rs 0.9 crore in FY14 to Rs 2.05 crore in FY16, according to government data. The sharpest rise in land prices is visible in Maharashtra, Punjab and Haryana. While this could be a key reason for people wanting to offer their land for acquisition, experts also note that higher costs can adversely affect key government plans such as affordable housing or airport development.

“The Land Acquisition Act, 2013, fixes compensation for acquired land at rather high levels. In turn, this makes land acquired for affordable housing expensive and contributes to high costs. Short of amending the Land Acquisition Act, 2013, for the purpose of acquiring land for affordable housing, there is no simple solution to this source of high price of land,” the Niti Aayog noted in its final Three Year Action Agenda, 2017-18 to 2019-20, released last August.

Land cost in the highways sector, which used to be 10 per cent of the total project cost about a decade ago, is now more than 100 per cent of the civil cost in a number of sections. Amitabh Kundu, Distinguished Fellow at the Research and Information System for Developing Countries, said there are signs that the constraint of land on investment may be easing but it still remains a key hurdle in attracting investments.

When asked whether land acquisition has become a non-issue for infrastructure projects, Kundu said: “I think to answer that question rigorously you need much more analysis than I have been able to do or is available in the public domain. Only one thing is that the NCAER State Investment Potential Index includes land, and it doesn’t make things more difficult, so that is something that gives me an idea that one needs to find out whether land has ceased to be an issue. And you see Nitin Gadkariji also said that, he must having some information about the recent land acquisitions. But I always felt that land acquisition would be a factor which is constraining investment in many of the states. This is an issue but there are some hopeful signs. But I think it’s too early to say that land has become a non-issue in attracting investments.”

Apart from rising acquisition rates, another reason on people coming forward to part with their land is that agriculture land prices have either fallen or remained stagnant in the last 4-5 years. The slowdown in the real estate market has also depressed sale-purchase activity for agriculture lands, which are typically used for residential or commercial development after conversion of the land use. This means that landowners giving their holdings for acquisition by government agencies may be getting prices that are close to market prices or even higher.

“Sometimes Land Acquisition Act compensation even in the new (projects) is three-four times, but it is based on the registered rates. In real estate, there is the registered rate and the actual rate. So, some of the dynamic organisations they buy, they give you the market rate, then people come in, they get everything in white, they will be very happy to (sell) if they get appropriate price. It’s all market mechanism and Gujarat and Maharashtra, they know the market mechanism very well,” said D J Pandian, vice-president & chief investment officer at AIIB.