Aug. 30 (Bloomberg) -- India passed a key bill that assures improved terms for farmers when companies acquire their land for factories and mines, seeking to curb deadly clashes as Prime Minister Manmohan Singh attempts to woo poor voters.
Changes to a century-old law will allow farmers to get at least double the value of their land as compensation, while aiming to help revive stalled projects. Private businesses will also need to win the approval of at least 80 percent of landholders before seeking state intervention to evict the remaining residents. The law, passed by the lower house of parliament late last night, requires a social impact study and provides rules for property valuation.
Singh, whose administration has been marked by corruption allegations and policy gridlock, is seeking to burnish his pro-poor image by passing legislation in the final months of his second five-year term. He won a rare victory on Aug. 26, when lawmakers passed another landmark bill that expands the world’s biggest food program, as he struggles to rescue a tumbling rupee and revive economic growth from a decade low.
“This is like a 5,000-meter race, where in the last 500 meters you really speed up,” said Sandeep Shastri, a political analyst and pro-vice chancellor of Jain University in Bangalore. “But in the first 4,500 meters you lost so much time that no matter how fast you run, it won’t really help.”
The land bill has been fought over both within the ruling Congress party and in parliament since September 2011, delaying the ratification of a key plank of the government’s agenda to spread the benefits of growth. Protests over state-backed purchases of land at below-market rates for factories or highways have increased in frequency since 2007, triggering calls for greater compensation to farmers.
Analysts and investors are divided on whether it will speed up land clearances and end the impasse preventing the building of roads, power stations and mines. Gross domestic product expanded 5 percent in the year to March 31, the smallest gain since 2003, and the rupee touched a record low of 68.845 a dollar on Aug. 28.
“It’s detrimental for companies,” said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai. “The viability of projects will be affected because getting the consent of land owners will be difficult and higher compensation will lead to an increase in costs.”
Verge of Crisis
Paying farmers a higher rate for their land should help prevent conflicts, according to R.K. Gupta, a managing director in New Delhi at Taurus Asset Management Co., which manages about $816 million in assets.
“I think this is a landmark bill and in the long run will be very positive,” said Gupta. “Hopefully the disputes that have affected industrial growth very badly in the last few years will now come to an end.”
The new law, which needs to be approved by the upper house next, comes at a time when India’s $1.8 trillion economy is facing its biggest crisis in more than two decades. The currency has weakened about 18 percent versus the dollar this year. The plunge has brought back memories of India’s early 1990s crisis, when the government received an International Monetary Fund loan as foreign reserves dwindled.
The passage of the law amends the 1894 colonial-era Land Acquisition Act, which allows the state to seize land at cheap rates if it believes there’s a larger public interest, such as the creation of jobs. Abuse of the rule has led to clashes between farmers and provincial administrations, and fueled Maoist rebellions in some mineral-rich states, including Chhattisgarh.
Tussles have sparked rioting and stalled more than $100 billion of projects across India, the Associated Chambers of Commerce & Industry said in 2009.
Plans by Posco, the world’s third-largest steelmaker, to build a $12 billion steel project -- billed as the biggest investment in India by a foreign company -- have languished since 2005 because of opposition from farmers unwilling to vacate public land they’ve occupied for generations.
ArcelorMittal, the world’s biggest producer of the alloy, last month scrapped its plans for a mill in the eastern state of Odisha, while Posco said it exited a project in Karnataka in the south of the country. Vedanta Resources Plc’s plans for a $7.8 billion aluminum complex in the bauxite-rich Niyamgiri Hills were scuttled this month after native tribes rejected incentives for mining approval.
Singh’s minority government needed the backing of regional parties for the passage of the bill, which was championed by Congress President Sonia Gandhi and her son Rahul Gandhi, members of a political dynasty that has ruled India for most of the last seven decades.
The ruling coalition, made up of nine political parties, will probably lose the next election due by May, according to an opinion poll published by Times Now television channel and C-Voter polling agency last month. The number of seats won by Congress may drop by about 42 percent to 119 seats while the main opposition Bharatiya Janata Party is likely to win 131 seats, the poll found. No margin of error was given.
“This government has seen a drift that we have never seen in the past, a period of policy paralysis and a sudden awakening at the end which may not prove to be anything substantial at the polls,” Jain University’s Shastri said. “A few months is a long time in politics to demolish your image but a few months is too short a time to build up your image.”
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