Monday, April 20, 2015

Rajat Gupta

Fallen heroes are still heroes. The fact that heroes are not infallible proves that they are also human and can sometimes make mistakes. So is it fair that we treat them as untouchables after the mistake?

How many of us can keep a hand on heart and say that we have never made a mistake, broken a law when no one was watching, or pushed the boundary of our own version of truth or integrity.

A minor infraction is still an infraction. How do you think the world would react if all of these infractions were to appear on the front pages of newspapers around the world. How would you want the world to react to that? Would you like it that the world forget all the good things that you did and treat you like a common criminal if you really through that the infraction was just pushing at the boundaries and had no mal intent or had a moment of weakness.

The law should and will take its own course. It must, to discourage others from doing the same mistake. However that does not mean that the rest of us have stopped respecting or admiring you for what you have done aside from this infraction.

Writing this for Rajat Gupta for all the good that he has done for countless that he has not even personally met.

Why India needs a reformed Land Acquisition, Rehabilitation and Resettlement Act?

Consider the following

Roads, factories, houses, dams etc need to be built for development. India needs to create better infrastructure for development of the country and provide higher the standard of living for all Indians.

Think of the NH1 (National Highway 1) connecting Delhi to Amritsar or any other highway, and the enormous prosperity that it has brought to the people and cities located along the way.  Roads cannot be built on thin air (at least not yet) and such development requires acquisition of land by the government to enable construction of roads. This road construction if often outsourced for a fixed price or for a toll fee to be collected over a period, to for-profit private entities. For profit is not a bad term. It creates incentive for private entities to become more efficient, creates competition thus creates development. If the government does not own a continuous stretch of this land for the road it needs to acquire this from the land owners, who in most cases and inevitably are farmers. 

The farmers’ livelihood is dependent on these lands. They are not necessarily skilled in any other work and depend on the land for a living and cannot survive if this is taken away from them. 

How to address both these concerns. In theory, the farmers would agree to sell for a fair compensation that takes care of their livelihood and they can use this compensation to relocate and continue to enjoy at-least and perhaps and better standard of living than before.

However, in reality this is not efficient and both parties can take advantage of this situation

Farmers fear that government would not give them a fair compensation and kick them out of their livelihood and place of living

Government fears farmers would take undue advantage and hold out on selling leading making the projects considerably expensive if not unviable and delay development

Therefore a balanced law is needed to ensure concerns of both parties are met and an environment is created to ensure faster development.

Now, India already has a Land Acquisition Act that was passed in 2013.  However, the government feels that the current act has led to constraints on speed of development and wants to amend certain provisions to speed things up. Does that necessarily mean that farmers would be worse off, is not clear, but that certainly seems to be the impression that opposition parties have managed to create,  leading to a negative farmer sentiment against the revised proposals.

Here is the summary of proposed changes versus the current Act and my analysis.


 LARR Act, 2013
Ordinance/LARR (Amendment) Bill, 2015 (as introduced)
Bill as passed by Lok Sabha
My Comments
Consent (Proviso to Section 2(2))*
The consent of 80% land owners required for private projects. The consent of 70% land owners required for Public-Private Partnership projects. No consent is required for government projects.
The Bill exempts five types of projects from this provision. These categories are: (i) defence, (ii) rural infrastructure, (iii) affordable housing, (iv) industrial corridors, and (v) infrastructure and social infrastructure including PPP projects where the government owns the land.
Removes social infrastructure from the 5 exempted projects. Specifies the definition of industrial corridors as those set up by the government/government undertakings, up to 1 km on either side of the road/railway of the corridor.
The categories defined are very open ended and can be misused. Almost all projects can be classified in one of these categories and while the government’s intent is right, the open ended nature of these categories makes this the most controversial change.
The government needs to define these better eg Defence projects where government ownership is >51%. Public Infra such as roads, hydro power projects that cannot be  set up elsewhere without leading making these projects unviable.
However, coal power projects for example that can be set up elsewhere need not do away with the consent provision.
Government can also consider lowering the consent limit to say 50% for some of these categories of projects rather than doing away with it completely.
Social Impact Assessment (Chapter II)
SIA is mandatory for all projects except: (i) in cases of urgency as outlined in Section 40 or (ii) for irrigation projects where an Environmental Impact Assessment is required.
The Bill allows the government to exempt projects falling under the five categories mentioned above from this provision, through a notification. Therefore, an SIA need not be conducted if the government issues a notification stating this (on a project to project basis).
Adds that before issuing the notification, the government must ensure that the extent of land being acquired is in keeping with the minimum land required.
Why should there not be a social impact assessment? The fear perhaps is that any SIA report would make projects a political hot potato and cause unnecessary delays. The act should instead make provide for SIA to be done in a timely manner and scope SIA of this needs to be clearly defined.
Irrigated multi-cropped land (Chapter III)
Irrigated multi-cropped land cannot be acquired beyond a limit specified by the government. The acquisition of agricultural land for all projects in a district/state must not exceed the total net sown area of the district/state.
The Bill allows the government to exempt projects falling under the five categories mentioned above from this provision, through a notification. Therefore, this limit need not be adhered to if the government issues a notification stating this (on a project to project basis).
Adds that before issuing the notification, the government must ensure that the extent of land being acquired is in keeping with the minimum land required.
Should be okay other provisions are better defined.
Compensation & rehabilitation and resettlement (R&R) provisions of 13 other laws which govern land acquisition (Fourth Schedule)
The Act exempted 13 laws (such as the National Highways Act, 1956 and the Railways Act, 1989) from its ambit. These laws also govern the process of acquisition of land for specific sectors. However, the Act required that compensation and R&R provisions of these laws be brought in consonance with it by January 1, 2015.
The Bill seeks to do this, that is, to bring the compensation and R&R provisions of 13 other laws in consonance with the Act.
No change.
Should be okay. Needed to simplify compliance and speed up projects.
Return of unutilised land (Section 101)
If land acquired under the Act remains unutilised for five years from taking possession, it must be returned to the original owners or a land bank.
The Bill changes this to state that the period after which unutilised land will need to be returned to the later of: (i) five years, or (ii) any period specified at the time of setting up the project.
No change.
No need for this amendment.
Retrospective application (Section 24(2))
The Land Acquisition Act, 1894 will continue to apply in certain cases, when an award has been made under it. The LARR Act, 2013 will apply in case an award has been made five years or more prior to the commencement of the LARR Act, 2013 but the physical possession of the land has not been taken or compensation has not been paid.
The Bill states that in calculating the time period for retrospective application, any period during which the proceedings were held up: (i) due to a stay order of a court, or (ii) for a period specified in the award of a Tribunal, or (iii) for any period where possession was taken but the compensation is lying deposited in a court or any account, will not be counted.
Changes ‘account’ to ‘designated account’.
Should be okay with this change.
R&R award (Section 31, Second Schedule)
The Act provides the option of employment to one member of an affected family as part of the R&R award.
No change.
Adds that employment to ‘one member of such affected family of farm labour’ must be given.
Farmers should be okay with this. However employed to do what and at what salary levels. This needs clarification
Change from private ‘company’ to private ‘entity’ (Section 3(j))
The provisions of the Act are also applicable when land is acquired for public purpose for private companies. A company was one included in the Companies Act, 1956, or under the Societies Registration Act, 1860.
The Bill changes the term ‘private company’ to ‘private entity’. A ‘private entity’ is an entity other than a government entity, and includes a proprietorship, partnership, company, corporation, non-profit organisation, or other entity. The Bill changes the Companies Act, 1956 to the Companies Act, 2013.
No change.
Okay with this.
Change to hearing by Land Acquisition, Rehabilitation and Resettlement Authority (Chapter VIII)
The Act provides for the establishment of a Land Acquisition, Rehabilitation and Resettlement (LARR) Authority which may be approached in case a person is not satisfied with an award under the Act.
No change.
Adds that the LARR Authority must hold its hearing in the district where the land acquisition is taking place, after receiving a reference from the Collector and giving notice of this reference to all concerned parties.
Okay with this change
Offences by the government (Section 87)
If an offence is committed by a government department, the head of the department will be deemed guilty unless he can show that he had exercised due diligence to prevent the commission of the offence.
The Bill deletes this provision.
No change.
This is probably much needed amendment if we want our bureaucrats to be able to function and to create a development focused environment and remove red tape. People make genuine mistakes, they cannot make any decision if they have to go to jail for every mistake..
The Bill adds a provision to state that if an offence is committed by a government employee he cannot be prosecuted without the prior sanction of the government, as provided under Section 197 of the Code of Criminal Procedure, 1973.
Replaces this to state that a government employee can be prosecuted as provided for in Section 197 of the Code of Criminal Procedure, 1973.
Survey of wasteland (No provision)
No provision.
No change.
Adds a provision that the government must conduct a survey of its wasteland including arid land, and maintain a record with details of this land, as may be prescribed by the government.
Pragmatic change. Government should consider using wasteland/arid land before acquiring land from farmers.
Acquisition of land for private hospitals and private educational institutions (Section 2(1)(b)(i))))
Excluded the acquisition of land for private hospitals and private educational institutions.
The Bill allows the acquisition of land for private hospitals and educational institutions.
Removes this provision. Thus, the acquisition of land for private hospitals & private educational institutions is excluded.
No change here but aren’t private hospitals and private schools also necessary infra. Especially Schools, since they are not for profit by law. But that is a discussion for another time.


Monday, April 06, 2015

RBI Keeps Key Rates and CRR unchanged

In the RBI policy meet today, the reserve bank has decided make no changes to Repo / Reverse Repo rates which is as expected after making two surprise rate cuts this year. A section of the market although had expected some tweaking in SLR or CRR. However RBI decided to leave these unchanged as well. Repo Rate remains at 7.5%, SLR at 21.5% and CRR at 4%

Rajan is probably waiting to get more clarity on Fed moves and also worried about the impact of the unseasonal rains and the impact that may have on food inflation and therefore on targeted inflation levels.

Repo rate is the rate of interest at which RBI lends to commercial banks

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