Rajiv Kumar

Tale of two disastrous Bills

RAJIV KUMAR | Updated on November 17, 2011 Published on November 11, 2011

The proposed land acquisition law will impede infrastructure development, particularly in the Gangetic plain.   -  The Hindu

The passage of Bills on land acquisition and minerals development will further disincentivise private investment, which is already down to a trickle. It could mark the end of India's high growth story.

The second quarter results from corporate India and the latest IIP numbers have confirmed beyond doubt that Indian industry is in trouble. While demand continues to grow — thankfully — profits both before and after tax are down significantly. This is bound to adversely affect the fiscal situation, and could well lead to calls from populist and Left-leaning segments within the ruling coalition for higher rates of direct taxation, both on individual and corporate incomes.

This will only compound the problem, as it will further disincentivise private investment, which is today down to a mere trickle. Unless urgent steps are taken to reverse the trend and shore up investment sentiment, India's growth story may start to stutter badly, and it will then take a long time for it to get back on a higher trajectory. It is, therefore, important that in the coming winter session of the Parliament, long pending Bills are passed.

On the other hand, some Bills that have the potential to deal a mortal blow to manufacturing and mining activity should be shelved. They need to be reworked to rid them of the pernicious features that will mark a reversal of the reform process started in the late eighties by Mr Rajiv Gandhi.

In this context, I want to emphasise the need to relook at two draft Bills, namely, Land Acquisition, Rehabilitation & Resettlement (LARR) Bill and Mines and Minerals (Development and Regulation) Bill (MMDR), which have been lined up for being placed in the winter session of Parliament. There is an apprehension that if both these Bills are passed in their current form they would affect industrial development.

MINING BILL UNDESIRABLE

These two Bills, if brought on to the statute books, will have a deleterious impact on the future of manufacturing and mining activity. They will also cause a significant setback to infrastructure development and agriculture modernisation. Let me elaborate first on the MMDR Bill.

The MMDR draft Bill essentially proposes a major hike in government take (taxes plus royalty) from mining activity. This is done ostensibly for ensuring environment sustainability and protecting and improving the living standards of people, largely indigenous tribes, who will be displaced by new mining activity. These are laudable objectives, which Indian industry fully and unreservedly supports. In large measure, the industry already works towards achieving these ends.

The present draft of the MMDR hikes the government take so enormously that it will make organised sector mining pretty much unviable and lead to a serious exodus of large mining companies from the sector. It can, of course, always be argued that this is simply a bluff on industry's part that should be called. Possible.

But I urge all those straining to call this bluff to have a dispassionate and non-ideological look at the numbers before doing so.

Such actions, taken on the basis of incomplete information, can inflict severe damage with long-lasting impact. A similar situation obtained in the late 1960s with coal, in which the then government continued to negotiate coking coal prices downwards in the same spirit of not letting the industry get away with super profits.

The result was the forced nationalisation of initially coking, and subsequently non-coking, coal with hardly any improvement in either the environment or the handling of displaced persons.

RETROGRADE LAND BILL

Perhaps, the same fate now awaits all mining units in the country, if the present MMDR draft goes through. By restricting the acquisition of land to 5 per cent of the area in districts with multiple cropping, LARR will seriously impede any major infrastructure development in the entire Gangetic plain, covering states like UP, Bihar, Jharkhand and West Bengal where such development is most required.

It will also complicate and impede monetisation of agriculture land, restricting options for a farmer faced with fragmentation of his holdings, and unable to eke out a reasonable living from agriculture.

LARR will thus contribute to a freezing of our agriculture sector, as it is caught in a backward, government-controlled time warp. LARR will also ensure that all future attempts at acquiring land for manufacturing, real estate and infrastructure development will face unending and enormous litigation with its features of having to pay annual payments to original owners for the next 20 years; identifying and paying all those who are affected by the acquisition that would include landless workers; paying 10 per cent of capital gains to the original owners for the next 10 years; and ensuring the development of basic facilities in the acquired areas which may not obtain in even the most developed rural regions of the country.

A disturbing aspect related to LARR is the claim by some that industry has already conveyed its unqualified support to the existing draft. This is clever but also perhaps disingenuous. I can say with some confidence that Ficci merely welcomed the attempt to replace a colonial law that we have been following since 1894. Industry would be quite feckless in supporting a law that could effectively constrain its further expansion!

It is time to get into serious consultations with all stakeholders, and not finalise a law on the basis of one-sided and rather ideologically loaded inputs. This will breach the public-private partnership that is essential today for the country's development.

(The author is Secretary-General, FICCI.)

Published on November 11, 2011
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