Forbidden lands and the Indian Budget: Part II

Chronology:

LAA 1894: Benchmark Act used to acquire land for “public purposes”. The phrase “public purpose” stood undefined.

SEZ Act 2005: Allowed SEZs to be set up by the Government or by the private sector or through PPPs. Government started acquiring land using the LAA for SEZs claiming that its a “public purpose.” Farmers lobby upset. No act for rehab and resettlement. No provisions for returning the land if the SEZ does not materialize.

LARR 2013: LAA changed to Land Acquisition, Rehabilitation and Resettlement (LARR). LARR brings in amendments that require consent of 80% of the land owners, if the acquisition is done by a private party and 70% , if the acquisition is by PPP. Also mandates Social Impact Assessment (SIA) before the land acquisition is done.

Land Ordinance 2014: Dilutes the SIA compliance for projects such as industrial corridors, rural infrastructure, affordable housing and “infrastructure and social infrastructure” projects. This last category includes sectors ranging from urban public transport to hospitals. Also, provides exemption to the consent clause for the Section 10A projects, as listed above.

Now, armed with that chronology, let me present the main arguments.

Firstly, did the UPA II do a good thing by revising the LAA? Undeniably yes, the leftists and the not-for-profit organizations and farmers associations would argue. After all, giving no thought to SIA is tantamount to legal landgrab, ain’t it? Further, there are impressive statistics to support the LARR. It seems that the amendment was discussed for something like 12 hours by more than 60 MPs in the Parliament over 7 long years before the changes were made. The LARR was only passed after amendments as suggested by Mr. Jaitley himself were made to the structure. So it does look like a very good deal on paper.

But, the LARR was undeniably, bad, would argue the trickle down experts. Force SIA on projects, and you have the project time and hence, costs, sky-rocketing. One estimate for power plants is that forcing SIA and Rehab and Resettlement (R&R) would increase only the social cost of a 1000 MW powerplant from Rs. 150 crores to Rs. 450 crore, rendering it completely unviable. And we are thinking of creating around 50,000 MW in the next 5 years. As the projects get delayed, growth suffers in its wake, harming not only the prospects of the developers, but more importantly harming the multiplier story and the poor much more sharply.

Intellectual India was yet to come to a conclusion to this economic conundrum, in which you don’t carry out SIA and the poor suffer, so you carry it out and then they suffer some more, when Election India happened. Largely out of angst, frustration and in a mood to kick out lethargy, the Modi Sarkar happened to us. Now, fast action is the hallmark of all Modi moves. So, in December 2014, an ordinance was passed that made further changes to the UPA version of the acquisition provisions. The Ordinance dilutes the acquisition and SIA provisions significantly, due to which it is seen to be an “industry friendly” move. However, is it?

This reminds me of the June 2014 event of Green lobby vs. Modi Sarkar. Again the issue was that under the 2006 notification issued under the Environment Protection Act, 1986, all construction projects from buildings to bridges, had to do a mandatory Environment Impact Assessment. This was seen to be anti-industry and hence, the NDA Government passed an amendment in June last year, which would make this assessment only mandatory for bigger construction projects, with built up areas of more than 20,000 sq.m.

I remember feeling distinctly uncomfortable when that had happened, just as I became extremely restless when the land ordinance was passed. I went back rather strongly (and I hope Mr. Modi, wrongly) to the infamous argument made by WB Vice President Larry Summers “The costs of pollution are likely to be non-linear as the initial increments of pollution probably have a very low cost.” I also mentally visited John Kenneth Galbraith’s argument that short run growth brings about “private opulence and public squalor”, that brings about systematic imbalances into the society in the long run. Also, did a quick trip to the World Commission on Environment and Development (WCED) which had spoken about “de-emphasizing” growth as one of the core philosophies of “development.” And of course, I would have to visit Dr. Amartya Sen, with his thoughts on expanding not growth, but rather choices and opportunities that ensure growth. Last, but not the least, I also gave a silent hug to Margaret Mitchell who made Scarlett O’Hara say famously “I’ll think about that tomorrow.”

We may feel today that social or environmental impact assessments affect the ease of business. But what will happen if you have country wide protests once the companies start what media popularly calls a “land grab”? We may feel today that environmental assessments are a hindrance to industrialization. But what will happen if the pollution levels necessitate a drastic increase in taxation levels of the polluting firms in the future?

I am not saying that growth can be ignored. I am also not saying that policy environment should not be bettered. I am just saying that a country like India need not always use the “grow dirty and clean up later” option.

And to add to the story more philosophically, rather than the fact that the SIA and land acquisition provisions were diluted, I was subtly more disturbed by the fact that they were diluted through an Ordinance.

An ordinance, as you may recall, is a legislation that is enacted by the power of the President, and has to be later ratified by the Parliament so that it becomes a formal Act. Agreed that we need to fast track certain projects. Agreed that it is land which has been a thorn in the side. But, the budget is presented in the month of February anyway. Couldn’t we have waited for 2 months till February? Given the delicate nature of the whole controversy, these amendments definitely should have been presented to the Parliament for a full discussion that such a topic merits. The fact that the houses were not allowed to debate on this will itself create an issue for the passage of the Ordinance into a formal Act.

I think that the hurry with which the changes were done and the method used to drive the same were in bad taste. Its too Krugmanistically Keynesian, if you know what I mean. For the growth policies of India, I have infinite preference for Jeffrey Sachs “We need to defend the interests of those we’ve never met and those we never will….”

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