Avoid a hard landing

The UPA government subjected the infrastructure sector to policy paralysis, environment clearance roadblocks and high-intensity redtape. The NDA government fought tooth and nail to bring about an ordinance when all other measures failed to get all parties onboard the Land Acquisition Act. This was necessitated as the methods for acquiring land under the dated Land Acquisition Act of 1894 hit a wall, because of the forced nature of acquisition at ridiculously low rates of compensation.

Finally, Parliament passed the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013, which relied upon five tenets: enhanced compensation, social impact assessment, informed consent,rehabilitation/resettlement, and return of land.

The land so acquired had to be purchased at four times the prevailing rates mentioned in the “ready reckoner’. The desire to bring in the Act quickly and to defang all opposition led to the establishment of a very high compensation multiple. This has caused NHAI’s ballooning debt as cost of land is contributing to nearly 40-50 per cent of the cost of the road project. NHAI’s debt servicing cost is projected to shoot up nearly four times by 2022-23—from Rs 144.43 billion (including Rs 42.81 billion principal repayment and Rs 101.22 billion interest) in 2018-19 to over Rs 610 billion then. NHAI has been forced to increasingly rely on market borrowings— up to Rs 612.17 billion in 2018-19 from Rs 33.43 billion in 2014-15, an increase of nearly 1,800 per cent. This is not sustainable and needs correction. Either the multiple factor of four needs to be debated and brought back to twice, especially with the real-estate market being down at present or land should not be acquired. Instead of acquiring land, it should be taken on a land-pooling basis where the landowner is given a share in the asset-owning business. So if there is an SPV that will collect toll, preference shares could be issued to landowners and the land rights would vest with the SPV, ensuring that the landowner has a stake and regular dividend that make up for the loss of the productive output hitherto derived from tilling the land.

In the NDA’s term under Prime Minister Narendra Modi, the Government has spent Rs 11 trillion of which nearly Rs 3 trillion is estimated to have been spent on land acquisition alone. Last month, Union Minister of Roads & Highways Nitin Gadkari reviewed 500 road projects where nearly Rs 3 trillion of investment is involved and the biggest culprit for delays has been land acquisition.

Ready reckoner rates have been kept artificially high as they provide stamp duty revenues to the city administration and also help secure four times the rates for land acquisition, especially for those who have already bought land around the area of proposed acquisition on ‘inside information’. Towns and cities so infused by cash from land acquisition are know to splurge the windfall gains in material comforts, which do not last too long. Realty prices show a spike in such areas as some of the gains also find their way into buying assets that were earlier out of reach. Soon, this temporary inflation in prices diffuses and investors almost certainly have a hard landing.

While the Union Budget 2020 will usher in new hopes of a Rs 102 trillion infrastructure pipeline, the Government would have factored in nearly 30 per cent of this as funding land acquisition, which can be well averted with an out-of-the-box approach.

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