Impact of
Land Acquisition Act Ordinance Dec 2014
On 29th Dec 2014 the government of India has amended the last land
acquisition bill 2013 passed by UPA-2 govt. There is no change in compensation,
rehabilitation and resettlement. It is an attempt to balance the interest of
land owner and industry. Two important implications are of the amendments are:
A) It shortens the land acquisition cycle time for certain kinds of projects. B)
Increases the cost of land acquisition for projects in sectors that were
earlier exempted from paying market linked compensation.
·
Our preliminary reading of the changes indicates that the impact is likely to
be mixed with the amendments giving relief only to select five sectors. For the
others, problems continue to be the same as before and for some others they
increase.
· Private manufacturing
sector (based on our reading) seems to have been by and large bypassed by the
amendments. Incrementally, there is no relief. We are, therefore, unclear if
the amendments are good enough to vigorously push the ‘Make in India’
initiative and push up the share of manufacturing sector in the economy.
· At this stage it is
unclear as to what role state governments will play in easing the problems
connected with land acquisition by private industry. State governments have
been given the leeway to enhance the compensation and R&R benefits beyond
those in the Central Act. Our understanding is that state governments have also
been given the leeway to determine as to what size of projects this Act will be
applicable on.
· Pushing the ordinance
in Parliament is the next big hurdle considering that the National Democratic
Alliance (NDA) government is in a minority in Rajya Sabha. It remains to be
seen if incremental investments (even in the five favoured sectors) flow
through in case the amendments are not ratified by Parliament.
· The IRR (internal rate
of return) on projects in those sectors that have not been exempted and those
which have been newly brought under the purview like coal mining, metro
railways, etc is likely to fall because of onerous compensation and
R&R clauses.
· With greenfield
projects in the private manufacturing space as difficult to set up as before
(based on our current reading), the valuation of land-intensive sectors is
likely to rise in the coming days as capacity addition becomes a constraint.
· We believe the benefits
of the amendments (when they are legislated and even in their current limited
scope) could have positive impact on multiple parts of the economy –
consumption (from more money in the hands of the land sellers), investment (in
the five areas that have been designated for better terms), banking (from lower
NPAs and better credit growth), etc.
If you have doubt about investment
product and want more information regarding investment or you need investment
services, feel free to ask us. We also conduct the seminar on investment and
financial planning. If you are interested for seminar in your city just drop
the mail.
Warm regards,
Arvind Trivedi
Certified Financial Planner
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