Major impediments before the introduction of LARRA?

Authored by Akshay Singh (EPGP-13B-008)

Land has increasingly grown to become a scare resource in India. This scarcity of land, lack
of conducive legal framework and multitude of other problems, imposed serious impediment
on acquiring land in India.
The demand of land and the impediment faced by industry in acquiring it, needs some
historical context. This has been divided into Pre & Post liberalisation phases:
1. Pre-liberalisation Phase (1947-1990) : During this phase, GOI under its
industrialization policy acquired land for large public projects. The land was acquired
by exercising its domain power enlisted in LAA 1894. These “compulsory”
acquisition at-times created agitation from small land holders. The demand from
private investors for industry or commerce remained low.
2. Post-liberalisation Phase (1990 – LARRA 2013) : Post liberalization, the demand
for land grew quickly ( predominately for private investment). The ambiguity in the
Land Acquisition Act 1894 with regard to acquisition for private purpose by GOI or
state govt. through their domain power severely impeded the land acquisition process.
The major impediments faced by the industry in acquiring land can be segregated into
regulatory and policy impediments (dysfunctional pricing regime, weak informational and
institutional mechanisms) and structural impediment (demand-supply discord, fragmented
and small land holdings). These impediments are detailed as below :-
1. Regulatory and Policy related impediments

a. Dysfunctional pricing policy : The land markets lacked a standardization

with regards to methodology for the valuation of land. Apart from differences
in the stamp duty, the methodology attributed the price of land to factors like
(1) fertility of land, (2) proximity of land to urban/developed centres, (3) the
purpose for which land would be used, (4) profitability of industry acquiring
the land, (5) nature of acquisition i.e. private/public wherein public acquisition
where done at lower prices. These factors contributed to arbitrariness of price
in acquiring land which often led to incessant litigations.

b. Regulatory impediments : Regulatory barriers such as land ceiling norms,

multiple stamp duties and restrictions on conversion of land from agricultural
to non-agricultural use hampers the creations of efficient land markets.
Additionally, as land laws lie in concurrent list, states have competed against
each other to attract investments by amending their own land laws. These
changes, together with the absence of over-arching central act, have produced
a cocktail of laws creating unintended chaos in the land market.

c. Non-existent institutional or information channel : Private investors faced

the challenge on lack of ready information on the availability of land. This
absence of informational or institutional channels can be attributed to the
enlisted factors (1). Varying land laws across different Indian states, (2) Lack
of unified central database on land availability, (3) Lack of communication
 between states and central agencies, (4) Lack of a nodal agency to co-ordinate
between a private investor and multiple government agencies.

2. Structural Impediments :
a. Demand – Supply discord : The supply of land is constricted by its very
nature. The total land available for industrial expansion (fallow land, non-
agricultural land or barren / uncultivable land) stood at 95.88 hectares or 29%
of total Indian landmass in year 2014-15 (Data from table 1 is used for
calculation). Additionally investors have a penchant for land that are close to
urban centres. These centres provide better (1). Skilled labour availability, (2)
Access to essential infrastructures (road, railways, electricity etc), and (3)
Access to Managerial level personnel. This creates a discord between the
demand and supply of land.

b. Fragmented & small land holdings : With the explosion in population post
1970, land became an increasingly scarce resource in India. Thus the land
available for industrial expansion is fragmented and consists of small land
holdings. These issues accentuate “first option”, which is compiled in next
section.

c. Unclear / Unlisted land titles : Unlisted land record or multiple land claims
embroils the land acquisition process.

d. Multiple stakeholders : Impediments caused due to fragmented and small

land holding is further complicated by the presence of multiple stakeholders of
the land. These stakeholders, which includes the land owner (who receives the
compensation in case of land acquisition), land laborers or tillers ( who are
indirectly affected due to land acquisition) complicated the process of fair
compensation (rehabilitation or resettlement).

The total stalled project cost, as on beginning of 2014, for 70 major project is added in Table
2. (Source : Business Today article date Jan, 2014)
Project Ownership Value of stalled project (cr) % project cost
Government (State, Centre & Local 96,043.5 27.2
Body)

Private (Domestic Firms) 1,63,886.5 46.5

Private (Private Firms) 92,550 26.3

These impediment had imposed severe restriction on acquiring land for industry. In
presence of these barriers the industries was left with the below three options for
acquiring land.
 I. First Option : Market Route - Purchasing land directly from owners : This option
relied on the presence of an efficient land market wherein the industry purchased land
directly from the its owners. In spite of the presence of “happy buyer & happy seller
match”, this option rarely got executed due to the presence of impediments, like (2.a)
Small and fragmented land holding, (2.c) Unclear/ Unlisted land titles, (2.d) Multiple
land stakeholders, and (1.c) Non-existent institutional or information channel, this
option rarely got executed.

II. Second Option : Leveraging GOI’s domain power (LAA Act 1894) to acquire
land on its behalf : This was traditionally the most used option in acquiring land for
large scale industries. The government under its domain power acquired land for
private sectors as compulsory undertaking. However the absence of (1.a) Standard
Land Pricing Policy, (1.b) Regulatory policies, meant small or disparate
compensation to land owners. Additionally the presence of barriers like (2.a) Small
and fragmented land holding and (2.c) Unclear/ Unlisted land titles, led to long and
often acrimonious litigation, delaying the entire acquisition.

III. Third Option : Industry plea to government for allocating land in industrial
estate : Often used by small or medium sized industries , wherein the industry
requests the government to allocate land from its “pooled” reserves.

The rampant misuse of government’s domain power in acquiring land created strong agtitaion
from the small and marginal land owners. Furthermore the absence of clear regulatory
framework and the presence of multiple other structural problems inherently probed long
litigation and delayed investment. Disenchantment amongst the private investor, due to long
delays, led to shelving of various project.
Various amendments aimed at reducing these impediments, failed to pass in parliament
owing to lack of bipartisan support. However, in year 2013, UPA-II passed the LARR Bill
2013 which brought major changes to the LAA 1894 and facilitated in alleviating these
impediments.

Some of the major stalled projects are shown in figure 2. These project pertains to early 2014,
soon after the notification of LARR Bill 2013.