Updating India’s Land Laws to Spur Economic Growth

As India continues to confront the COVID-19 crisis, there are also opportunities to not just weather the crisis but also revive economic growth. One of the ways to do this is by urgently resolving the impediments in the country’s land regulations, as this is a primary means to attract global manufacturers and businesses.

India’s stringent land regulations have impeded the faster proliferation of commercial activity in the manufacturing sector and dampened foreign investor sentiments for years.

Land is the basis of all economic activity in any country, and a sound land policy – updated to current requirements – is imperative for developing nations like India. Here, reforms are needed across the board – in regulation, ownership, operation, sale, leasing and inheritance of land.

For example, land ownership is still carried out via registered sale deeds. This is not only presumptive in nature but is also subject to challenge since this mechanism does not define the title of the property and the extent of rights of all owners. This has historically resulted in countless disputes, litigations and generally hijacked economic progress.

LARR Act, 2013 – Issues of Contention

Currently, land acquisition in the country is detailed under the Right to Fair Compensation and Transparency in the Land Acquisition, Rehabilitation and Resettlement (LARR) Act, 2013. In all fairness, the LARR Act 2013 partially addressed the power imbalance existing in India’s previously hopelessly archaic land laws. It also broadened the category of land losers by including those whose livelihood would be impacted by acquisition. Compensation to landowners was also brought in line with the market value of the land and mandated rehabilitation and resettlement of all land losers.

However, it simultaneously created several problems in land acquisition, resulting in time overruns and heavy cost for development projects. Some major points of contention include mandatory Social Impact Assessment (SIA) for all projects including infrastructure, and the provision of a consent clause (at least 80% for all private projects and 70% for public-private partnership (PPP) route.)

The requirement of SIA for every acquisition without a minimum threshold leads to delays in the implementation of government programmes. Therefore, the current government just recently proposed that this provision be exempted for projects such as security, rural infrastructure, industrial corridors and affordable housing.

The mandatory requirement of consent of 80% affected people in land acquisition by private players and 70% in PPP is a long-drawn process which leads to project delays and increases costs. The present government passed an amendment to this principal Act in 2015, but it was met with severe opposition and is now pending in the Rajya Sabha.

A major challenge in implementing speedy, universal land reforms in India is the fact that land is a state subject. This means that there is no national framework of land laws to address the wider issue of balancing corporate and farmer interests. Reforms should be integrated at the local level, but most states dilute the applicability of progressive clauses for various reasons. The fact that states can choose not to adopt central land laws undermines the possibility of speedy reforms.

Land Reforms – The Options

The implementation of a unique identity number (UID) would help streamline and organize India’s outdated land record system. Land ownership is currently defined by registered sale deeds which do not define the title of the property and the extent of rights of all owners. This is the main reasons for endless disputes and litigations.

The onus is completely on buyers to verify the previous land title and ownership details. This is time-consuming and cumbersome – and may be futile if the buyer finally establishes that the past records are faulty.

A UID-based system would be instrumental in tracing the details of all previous owners of a plot. The resultant transparency would help attract foreign investors who have so far been discouraged by the lack of proper land titles. It will also speed up the overall approval procedure for projects and unburden the judiciary to the extent of the faster resolution of land disputes.

Apart from compensating landowners in monetary terms, the land acquisition process can also be sped up by giving alternate incentives to landowners. Under LARR, 2013 the issue of compensation value to landowners has been fairly addressed and meets the global standards. However,  for many small landowners, their agricultural land is the primary source of livelihood. Alternate means of livelihood would incentivize them to sell their land without fear of livelihood loss – for instance, via job reservations in the manufacturing unit or other projects to be built on their land for a certain number of years.

The government is, at all levels, the biggest landowner in India. It can streamline its existing holdings by categorising its land banks into non-productive and productive categories, and then utilize such land to create infrastructure or incentivizing foreign manufacturing firms to set up units.

Several manufacturing companies from Japan, the US and Germany are actively looking to shift their base out of China and explore options in nations like India. Such opportunities can be effectively harnessed by making both land and labour laws more attractive for companies, without unduly compromising the interests of landowners. Incentives to foreign companies can include temporary COVID-19-period-specific relaxations such as time-bound SIA exemptions under the 2013 Act.

The approval process for such undertakings would also need to be streamlined, as obtaining clearances from multiple government agencies is otherwise cumbersome for companies setting up in India. A digital single-window clearance would be immensely helpful in the present scenario.

Such amendments to the land laws would help bring more foreign companies to India and therefore spur economic activity tremendously. In times like the coronavirus pandemic, this can literally not happen too soon.

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