Indian business worried by new land reform law

In this photograph taken on October 18, 2011, Indian farmers shout anti-government slogans during a protest against the Congress-led United Progressive Alliance (UPA) government land acquisition policy in New Delhi. Indian business groups warned Friday that a land reform bill passed by the lower house of parliament could jeopardise investment needed to kick-start the stuttering economy. (AFP Photo/Raveendran)

Indian business groups warned Friday that a land reform bill passed by the lower house of parliament could jeopardise investment that is desperately needed to kick-start the stuttering economy.

The contentious land acquisition bill is intended to give farmers fairer compensation for their land sought for development, and replace a 119-year-old law framed by India’s British colonial former rulers.

The bill passed through the lower house late Thursday, hailed by the government as a fair balance between improving landowners’ rights and streamlining the process of purchasing land for industrial projects.

But business groups warned the bill would send the cost of projects “sky-high” and stall investment in manufacturing, infrastructure and housing at a time of decade-low economic growth.

“The industry feels that the cost of acquiring land for the industrial projects and the realty sector will go sky-high, which is something not desirable when India is facing an economic slowdown,” the Associated Chambers of Commerce and Industry said in a statement.

The new bill, which must now be passed by the upper house and be approved by the president, stipulates that landowners must be paid up to four times the market value of land in rural areas and two times the value in urban parts.

It also states the need for rehabilitation and resettlement of people displaced by property purchases.

ASSOCHAM secretary general D.S. Rawat said a separate requirement in the bill to obtain consent from 80 percent of landholders before going ahead with a purchase “will be very difficult, if not impossible”.

Land acquisition is a politically charged issue in India, and land seizures for industrial projects have sparked bitter clashes between farmers, tribal groups and state authorities.

Huge investments, including construction of a $12-billion plant by South Korean steel giant POSCO in eastern India, have been delayed, sometimes for years.

India’s economy is growing at its slowest pace in a decade while the rupee has fallen to record lows in the last few weeks.

The rupee — Asia’s worst-performing currency this year — was at 67.37 against the dollar in morning trade on Friday, off its low of nearly 69 reached on Wednesday.

The Federation of Indian Chambers of Commerce and Industry said the new bill failed to streamline antiquated rules for buying land, warning that the process would instead now be “stretched by four to five years.”

Finance Minister P. Chidambaram rejected suggestions late on Thursday that the law was aimed at garnering rural votes for his ruling Congress party ahead of elections next year.

The land bill comes as the Congress party attempts to push through key reforms ahead of elections to kick-start the economy and douse accusations of policy paralysis after almost a decade in power.

On Monday, parliament passed long-delayed legislation to provide subsidised food to millions of poor, a populist programme intended to “wipe out” malnutrition in the country.

Although business groups said the new land reform bill was skewed too heavily in favour of landowners, farmers themselves felt the new measures did not go far enough.

While welcoming the bill as a whole, the Federation of Indian Farmers Organisations, an umbrella body of 24 farmer groups, said some measures, such as rehabilitation and skills retraining for farmers who sell their land, should be strengthened.

“The bill falls short when it comes to rehabilitation of those whose land is acquired. There is a sudden inflow of cash and most of them do not know what to do with it,” M.J. Khan, convenor of the organisation, told AFP.

Niranjan Hiranandani, managing director of leading real estate group Hiranandani, said the bill would drive up the cost of housing developments, with land purchases a major component of the overall project.

“In the case of affordable housing it would be about 25 percent increase in total costs counting the increase in land costs,” Hiranandani told CNBC TV.