ICRA Rating Feature

New Land Acquisition Bill 2013

reviewed by Collector and approved by Commissioner (R&R). Public hearings and enquiry to any objections will be done at specified stages. The maximum timelines specified for these steps are six months for SIA from its commencement and two months for EG. The process will lapse in case no land acquisition notification happens after twelve months of the EG report. Further, the R&R award should be made within twelve months from public declaration of the R&R scheme. Such a timeline is however extendable by the appropriate Government by another twelve months in specific justifiable cases. Exhibit 1 gives the process flow for land acquisition and R&R.
Exhibit 1 Process flow for land acquisition 5

PRE NOTIFICATION

NOTIFICATION
6 months from PN

R&R finalization Social Impact assessment Appraisal by Expert Group (EG) Examination by appropriate government Preliminary notification (PN) Public hearing

Draft declaration and R&R scheme

Compensation (3 months from award) R&R awards and (6 months from award) Infrastructural amenities (18 months from award)

6 months

2 months from SIA

12 months from EG report

Objections to be given within 60 days of PN 12 months from PN 3 to 18 months from date of award

The land possession is possible only after paying the full compensation, the maximum time for which is three months for the compensation and six months for monetary R&R, from date of award. The non-monetary R&R has to be done within a period of eighteen months from the date of award, however the implementation of the same which includes various infrastructure related facilities will be a herculean task. In agreement with the Standing Committee recommendations, the Bill incorporates penal rates of 9% per annum of unpaid sums in case of a delay of less than a year and 15% per annum in case of delays of more than an year to be paid by the Collector.

Increased emphasis on R&R will impact project cost; implementation timeline a function of how the prescribed mechanism works
Revisiting project viability, farsighted planning needed The R&R proposals put in perspective the cost to be borne towards socio economic development, industrialization and urbanization. Considering the higher monetary compensation coupled with the provision of non-monetary benefits, land acquisition is expected to be much costlier than before, leading to higher funding requirements. For large projects, apart from the cost, the responsibility of acquiring 80% consent will be a time consuming process which may lead project owners back to the drawing board and rationalize the actual requirement of land; even more in cases where any multi cropped irrigated land is involved. Impact Assessment will also aim at notifying the minimum possible land required and related displacement for a project. The provision of fair compensation to the affected families through the new Bill may encourage the families to give consent as compared to a previous situation where they may have been apprehensive about the adequacy of the compensation. However the actual outcome will be project and location specific and remains to be seen.

Source: Presentation on the Land acquisition bill by Ministry of Rural Development, September 2013
Page 5

ICRA Rating Services

ICRA Rating Feature

New Land Acquisition Bill 2013

The first resale of undeveloped land acquired under the Bill will require sharing of 40% of the appreciation with the landowner. Thus companies will need to have a clear vision with respect to their investment plans, arriving at a specific permanent purpose and a reasonable land requirement. term. Formal and transparent mechanism for R&R implementation prescribed Notwithstanding the increase in financial cost of land acquisition, smooth R&R can arrest inordinate delays and costs attached with such delays. Various projects stalled owing to land acquisition issue will gain impetus after the law is enacted owing to the clarity regarding land acquisition process and associated costs. The Bill has outlined an institutional framework at the Centre, State and Project level to carry out the acquisition and R&R as shown in Exhibit 2. Time bound implementation will require efficient working and good coordination across these levels, failure of which will defeat the Bill basic purposes of creating a streamlined process thereby saving on time and related sunk costs.
Exhibit 2 Institutional structure for acquisition and R&R6
Centre level State level Project level

State LA&RR Authority National Monitoring Committee Committee constituted by appropriate government

District Collector

Administrator RR

State Commissioner RR

RR Committee

R&R costs directly proportionate to number of land and livelihood losers The proposed R&R will have a visible impact on various industries and will be more onerous in sectors where the magnitude of land acquired and/or number of people affected is higher. Say a developer plans to develop a residential township over 100 acres of land in an urban area, under the existing norms, if the developer were to acquire the land directly from the owners at a place where the existing market rate were, say Rs 1 crore per acre, the cost of acquisition would be around Rs 100 crore. Let us assume that as per the concerned state policy, R&R as per the new law will apply in this case. In case the land area in question is of a significant size, the ownership would typically be fragmented. Consequently, a developer would have to negotiate with the various landowners thus prolonging the acquisition process. While some owners would sell their share at the offered rate, others would prefer to negotiate more or not to sell at all. Let us assume that the developer is eventually able to acquire the entire land over a period of three years at an average rate of Rs 1.3 crore per acre, that translates to a total acquisition cost of Rs 130 crore. Now under the Bill, as per specified land area by the respective State Government, the developer may have to comply with R&R requirements as the land area acquired is significant. This would be irrespective of the project purpose. The overall R&R, under some broad assumptions, would be as per table below:

Source: Presentation on the Land acquisition bill by Ministry of Rural Development, September 2013
Page 6

ICRA Rating Services

ICRA Rating Feature

New Land Acquisition Bill 2013

Table 2 Land acquisition example for project requiring a 100 acre land

Key assumptions: Acquisition of 100 acre land. Say, land comprises 50 pieces of 2 acre each having 1 constructed house worth Rs 5 lakh and assets worth Rs 50,000 on their respective piece. Further, the entire land is source of livelihood to 50 families. Say market value is Rs 1.0 crore per acre
Total monetary compensation under earlier law Rs 130.0 crore Rs lakh per affected family Rs crore for entire area Irrespective of number of affected people

Compensation and R&R under LARR 2013

Remark

Principal Compensation for land owners assuming 50 land owner families Determined market Based on factors like average sale value + value of price of highest sale price over assets attached to previous 3 years/to be multiplied by a land factor if it does not reflect actual prevailing rate in opinion of concerned authority Solatium Determined market value + value of assets attached to land Compensation (A)Subsistence allowance for 1 year (B)Options (C)Transportation (D)Constructed house (E)Land (F)Land

205.50

102.75

205.50

102.75

Assuming average value of asset on land for each land owner Rs 50,000

411.00 Rs 3000*12 month Annuity OR one job per family OR one time grant of Rs 5 lac per family Rs 50,000 If house is lost, constructed house in urban area (equivalent cost of house if preferred by owner) 1 acre if land acquired for irrigation project 20% of developed land reserved for land owner, if acquired for urbanization 40% of appreciated land value if unused land sold within 5 years 0.36 5.0 0.50 0.50

205.50 0.18 2.50 0.25 0.25 Assuming 100 constructed houses of Rs 5 lac each Not applicable Assuming land owners do not exercise this option Not considered in this illustration Assuming 50 livelihood users Assuming one time grant

5.00 0.0

2.50 0.0

(G)Appreciation benefit For Livelihood losers A, B,C,D,E above and additional resettlement allowance of Rs 50,000 Total monetary compensation under LARR 2013

0.0

0.0

0.50 427 lakhs per family

0.25 213 crore for the total land

As compared to Rs 130 crore, the developer will have to incur a cost of Rs 213 crore owing to the new R&R norms. The above calculation is based on acquisition of 100 acre urban land with 50 land owners and 50 livelihood losers. A factor of two times can be considered on the market value for rural land acquisition based on the distance from an urban area in which case the outflow in the above example may vary based on the market value of land in that area. The example illustrates that the cost of acquisition will increase significantly under new norms for large scale developers. The cash outflow upfront may be lower in case the land losers opt for developed land share or shares of the acquiring company, which however would mean reduction in the saleable area/shareholding for the acquirer. Hence, the number of people involved and the severity of displacement will be key factors determining the acquisition cost. The table overleaf gives examples of number of people affected for some large projects across the country.

ICRA Rating Services

Page 7