CAG report provides hard evidence why the land acquisition law should not be diluted
For the first time, a comprehensive audit of land acquisition for industrial projects is available. Though it studies only Orissa, it holds vital lessons for the nation.



It took India upwards of a century to pass a new land acquisition law. But it might take the country less than a year to dilute it.

Within weeks of coming to power, the National Democratic Alliance government has proposed 19 amendments to the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013.

These amendments, which the Ministry of Rural Development says have been suggested by the states, could significantly dilute the provisions of the new law, which were meant to protect the interests of those losing their land and livelihood to industrial projects.

The safeguards were put in place because of heightened conflict over land acquisition in recent years.

Its previous avatar, the Land Acquisition Act of 1894, had been framed to enable the government to acquire land “for projects of public purpose”. However, over the last decade, state governments around the nation used it repeatedly to acquire land for private industry.

The centre and states argued that the industrialisation such land acquisitions encouraged did serve public purpose, by creating jobs and fuelling economic growth. But farmer groups and grassroot organisations maintained that such acquisition deprived farmers of a fair price for the land. Industry, meanwhile, claimed the acquisition was slow and projects were being delayed.

The Comptroller and Auditor General has studied all cases of land acquisition for private industry by the Odisha government between 2001-12. Its audit report provides hard evidence for what many have suspected till now.

While many individual cases of contentious land acquisition have been documented and studied by the media and scholars, this is the first time a comprehensive audit of land acquired for private industry by a state government is available.

The Framework
In 2004, Odisha passed a law to speed up industrial projects by setting up a single window clearance system. A committee headed by the chief minister took charge of vetting projects with investment over Rs 1,000 crore.

The state entered into memorandums of understanding (MoUs) with private companies in which it promised, among other things, to help them find land.

The job was entrusted to the Industrial Infrastructure Development Corporation of Odisha (IDCO), which had been set up in 1981 to create industrial estates where plots were leased out to small and medium industrial units.

Since large projects could not be accommodated in such estates, IDCO was asked to identify and buy large tracts of land where industry could be set up.

By 2012, it had acquired 29,769  acres of private land for industrial projects – 20,796 acres for 52 projects with MoUs, and 8,974 acres for 54 non-MoU projects.

How landowners lost out
Nearly half of the land  – 14,297 acres of land for 33 companies  – was acquired under the section governing land acquisition for “public purpose”.

This violated the law, the CAG report says, because land for private companies must be acquired under Part VII of the Land Acquisition Act.

Introduced in 1984, Part VII lays down rules for land acquisition for non-government companies, and mandates that the government acquire land for private companies only after:

* the company fails to buy land directly from farmers

* the company signs an agreement not to use the land for any other purpose without the government’s approval

* the agreement allows the government to take back the land in cases of misuse, non-use and partial use.

* an agriculture officer is consulted before acquisition of agricultural land, which could be done only if non-agriculture land was not found suitable for the project.

Not only was the acquisition done under the wrong section, vital safeguards were bypassed.

Emergency acquisition
Under Section 5 of the Land Acquisition Act, the government must inform those whose land it seeks to acquire both through individual notices and a public notification. People are given a chance to air their objections.

While acquiring 9,926 acres for 30 industries, the CAG found the government published a public notification but did not invite objections. Individual notices were not served. When it received objections pertaining to inadequate compensation and lack of employment, they were not considered.

Additionally, in many cases, the government dispensed with this safeguard altogether. This can be done only in emergency cases – when it needs to acquire land for a project which must be completed within six months of time, or when public funds allotted for a project would lapse if not spent within that period.

But 7,026 acres of land was acquired for 20 companies, the CAG found, “by invoking emergency provision though none of the above grounds was fulfilled”. Worse, in 58 cases involving 4,370 acres, the revenue department took six to 34 months to issue orders for acquisition, which indicates “there was actually no necessity for invoking the emergency provision”. Even worse, in the case of 1,241 acres acquired for two industries in 2008, all of the land remained unutilised as of March 2013.

Low compensation
Under Odisha’s laws, the government must compensate landowners within one year of publishing the acquisition notification. But the CAG found that in 47 cases, the government took one to eight years to finalise the proceedings, which deprived owners of the latest market value of their land.

The government also under-assessed compensation during the acquisition of 2,546 acres of private land, by fixing the market value at a rate lower than highest sale value registered in the area.

Stalled projects
But it was not just the landowners who lost out because of flawed land acquisition. Even the much-mooted objective of industrialisation was not fulfilled.

During 2001-12, Odisha signed MoUs with 89 industries, committing to provide 86,732 acres of land.

As of March 2012, only two projects had been given 100 percent land. 37 had been given no land, while the land requirement of the others was partially met.

Curiously, this shortfall existed despite the availability of government land. In 2007 Odisha passed an industrial policy resolution to create a land bank by identifying tracts of government land. Between 2010-13, 4.34 lakh acres of government land was identified by the revenue department, but only 0.04 percent was transferred to Odisha Industrial Infrastructure Development Corporation, popularly known as IDCO. What explains this?

Selection by companies
The CAG report points out that it was companies who were selecting the land and not the government. Of 89 MoUs signed, the government agreed to acquire land identified by 71 companies. No survey was done to see if the land was suitable for diversion to industry. The revenue department was not consulted on the availability of alternative land. 91% of the private land acquired was agricultural land and yet the district agricultural officer was not consulted.

While government rules stipulate that all efforts should be made to avoid the acquisition of irrigated double-crop land, 2,001 acres of land in the command area of irrigation projects was acquired. In one case, the chief engineer of the water sources department said the acquisition of irrigated land would not be in the interests of the state. His advice was disregarded.

In 86 cases, the government did not bother to find out if private companies had already directly purchased land. The CAG found that seven industries had purchased 1,324 acres directly, which means that more land was acquired than the requirement of the project.

Despite the government pulling out all stops, as of March 2012 only two projects had managed to complete the land acquisition and start production.

Delays

Part of the reason for delays was public resistance and court cases against the projects – which is understandable given that companies were selecting prime agricultural land for their projects. But that wasn’t all. In six cases, land acquisition was delayed because the companies changed the location of the project.

Delays also took place because of piecemeal acquisition. Land was often acquired for the main plant but not the railway line, approach road, water pipeline and other components.

But it wasn’t just the messy process of land acquisition that delayed the start of projects. In the case of 10 corporations, despite more than 50 per cent of their land requirement being met, documents related to financial closure were not submitted by the promoters as of March 2012. Financial closure is essential to establish the industry and begin utilisation of the allotted land.

Financial benefits of land
Regardless of whether or not they utlilised the land, the companies benefitted from it. This was land being leased to the companies by the state government. Any company that wanted to mortgage the land to raise money for its project had to get the state’s nod.

What happened was very different. IDCO, though it had no power to do so, conferrred mortgage rights onto companies, while handing over 46,733 acres. It also issued ‘no objection certificates’ to 26 companies. Nineteen of these companies – the CAG did not have information on the remaining seven – raised close to Rs 75,000 crore after mortgaging the land with them.

The report says IDCO, without authorisation, allowed industries to raise such loans without erecting enough safeguards to ensure this money was used for the project.

Social Impact Assessment
The report highlights how land acquisition can go wrong: the loss of good agricultural land even though alternative land was available, villagers whose concerns went unheard and who later got low or delayed compensation. All this contributed to slow and inadequate acquisition of land, resulting in an outcome where, while villagers lost, the projects did not come up either.

The new land acquisition law has provisions that help avoid such pitfalls. But several of these are now on the chopping block: removing mandatory consent for Public Private Partnerships (PPP), bringing the consent percentage down to 50 for other projects; doing away with social impact assessments for all but large/PPP projects, an expansion of the urgency clause to even non-defence projects, and more.

One of these, social impact assessment, helps avoid the mistakes Odisha made. Before any land is acquired for a project, an expert group must determine if the proposed acquisition serves a public purpose, the extent of displacement, whether the land sought is the bare minimum needed, whether suitable land is available elsewhere. This could avoid the acquisition of prime agricultural land unless essential. It could help ensure excess land is not acquired.

“The combination of ‘public purpose’, ‘consent’, ‘compensation’ and ‘R&R requirements’ will finally put a stop to the thoughtless acquisition of fertile farmlands for factories,” Vinayak Chhatterjee, Chairman of the Confederation of Indian Industry’s National Task Force on Infrastructure Projects, wrote in a recent column in Business Standard. “The LAA now leads both government and industry to follow a rational ‘merit-order’ for identifying land for industrialisation.”

But it is precisely such provisions that industrial houses are opposing. And governments, both at the centre and at the states, seem eager to oblige.

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