The industrial sector is unhappy with the new Land Acquisition Bill as it will increase the cost of land, which will eventually put pressure on the consumers, experts say.

“Be it the Re-establishment and Rehabilitation (RR) clause or the heavy compensation for urban and rural areas, this Bill is not in favour of industries. Delay in the acquisition process, along with several other issues such as last-mile acquisition have not been addressed by the government at all,” said Chandan Bijasure, director, Federation of Indian Chambers of Commerce and Industry (FICCI).

The industry has expressed concerns over the RR clause saying it will affect middle class housing.

“The Bill will adversely affect development of large real estate projects, infrastructure projects and industrial development. Additional financial burden of the RR component will increase the cost of land and prolong its acquisition,” said Naveen Raheja, co-chairman of ASSOCHAM and managing director of Raheja Developers Ltd.

“In most parts of the country, private developers acquire land by mutually negotiating market price with the land owners. In our opinion, the Bill should exclude the privately negotiated transactions from the preview of the Bill,” said Raheja.

India’s largest real estate developer, DLF, is also certain that the Bill will escalate the cost of land. The government, however, believes the Bill will reduce the gap between urban and rural India.

The industry still believes that the government has a chance to make this law more balanced.

“The Bill should give some leverage to industries to allow them to acquire land with less hassle,” Bijasure said.

“Rules are under formation and the Bill is likely to address the stake holders’ issues,” rural development ministry official said.

Private highway developers are trying to extract maximum "relief" from government, citing the continuing economic gloom that has impacted their projects. Road builders who have started 16 premium projects including IRB, L&T, Reliance Infra, Ashoka Buildcon and Essel Infraprojects want the government to allow rescheduling of annual premium payment as is being considered for 23 other "stressed" projects.

Highways ministry has sought Cabinet approval for rescheduling of upfront annual revenue or "premium" in case these stressed projects.

After receiving a proposal from National Highway Builders Federation (NHBF) and IRB that the proposed premium rescheduling scheme should be extended to all premium projects NHAI has asked the ministry to put a supplementary note for Cabinet's consideration. NHBF has said, "Selective approach in allowing rescheduling of premium will invite litigation and any policy amendments needs to be extended to all premium projects awarded, irrespective of these projects have been issued appointed date and started construction or not and allow the concessionaire who are opting for this scheme."

It added any litigation on this issue may derail the scheme and will in turn affect the revival of this sector. NHBF has said due to economic slowdown last year and rate of GDP growth plummeting to a decade low 5% have impacted toll revenues as low as 50% than estimated in majority of projects.

According to NHAI sources, the premium committed in case of already started 16 projects comes close to Rs 55,000 crore in the next 20-30 years and developers of the yet to be started 23 projects have committed to pay Rs 1 lakh crore to the authority.

Ministry officials said it's impossible to add fresh ones to the list of identified "stressed" projects since a consensus has already been achieved among law, finance and road ministries to allow premium rescheduling of 23 projects including GMR's Kishangarh-Udaipur-Ahmedabad highway. "By bringing in more projects under this list we will open a new window for debate and objections. How can we say that projects where work has started are under stress?" asked a ministry official.

Moreover, the signal that economic affairs secretary Arvind Mayaram sent on Monday on premium rescheduling at a FICCI summit indicates the amount of heat this new proposal may generate. He had said that to avoid "moral hazard" because of this move, there is need to identify "stressed" projects objectively and to have a methodology.

He had added that there is need to find out whey the particular projects are stressed. "If it's because of authority's default then they must take the haircut. We can't brush it under the carpet. If the developer is at fault then it must take the haircut," Mayaram had said.

The expenditure secretary had also said that there is need of a regulator to deal with such issues objectively.

The government is mulling to set up of Infrastructure Investment Trusts that will manage infrastructure projects over a longer period of time. The trust will be on the lines of the already in place Real Estate Investment Trust, Economic Affairs Secretary Arvind Mayaram said on Monday.

Speaking at FICCI’s 5th India Infrastructure Summit 2013, he said the government was working on deepening the bond market and would set up a fund to promote debt and equity investment in the infra space.

On the equity side, Mayaram said “in two months the government will come up with Infrastructure Trust Fund, which would be in the nature of Real Estate Investment Trust.

Under the new structure, underlying revenue of a project will be transferred to a trust which will issue units to investors, including foreign investors who want to buy the units.

“In the next 2-3 months there will be greater deepening of the equity and bond markets for financing of the infrastructure sector,” Mayaram said.

“On the debt side, the government is making efforts to develop the corporate bond market and encourage Employees Provident Fund Organisation (EPFO) to invest in infrastructure projects,” he said.

Mayaram said it was important to engage overseas pension funds and sovereign wealth funds and that once they come Indian investors would also follow suit.

With few takers for road projects, the National Highways Authority of India (NHAI) wants the government to stop bidding out road projects through the public-private-partnership (PPP) route. Instead, the authority in a recent communication to the highways ministry has recommended that projects should be awarded in the form of cash contracts when the government finances the construction and maintenance for two years.

Citing that even the recent move of allowing developers to exit from already operational projects to release their equity has not solved the problem, NHAI chairman R P Singh has said in a letter, "We feel that there is no sense on going on bidding projects under PPP mode until market sentiment improves. Even if we get a bid, the same will be sub-optimal on account of lack of equity with the developers."

NHAI chief has said a large number of PPP projects both under toll and annuity — where government pays back the private players' investment in installments — have not received any response recently. Singh said once highways are built on EPC (engineering, procurement, construction) mode, NHAI can take over tolling for the next two years since for that brief period the contractor is responsible to fix any defects on the road stretch. Subsequently, these can be bid out on operation and maintenance (OMT) contract where operators are allowed to charge lower toll for road upkeep and to earn marginal profit.

Pushing the EPC mode, Singh has said NHAI has been receiving bids for EPC projects and substantially below the total project cost (TPC). In case of PPP contracts both bidders and bankers have been alleging that TPC fixed by NHAI is underestimated.

To meet the fund requirement for EPC contracts, NHAI chief has said the ministry can allow it to raise higher amount through tax-free bonds and other instruments, besides restoration of the held back cess from fuel sale, which is at least Rs 7,000 crore.

There is, however, no decision on the proposal. On Monday, highways secretary Vijay Chhibber told a conference organized by FICCI that the issue is a matter of discussion between NHAI and the ministry. In his address he said that this year about 6,500 km is targeted for awarding through cash contracts.

The finance ministry said gloom for PPP projects was overdone. Economic affairs secretary Arvind Mayaram said about 50% of such projects are doing well. "Traditionally, we (were) used to paying the private sector to do a job in two-three years after which the relationship ends. Now, the issue is how to manage relationships in post award framework," he said.

Even as the Road Ministry is seeking a go-ahead from the Cabinet for suspending toll on all future six-laning projects if they don’t meet the targets, it is also mulling options of reducing the toll tax in the ongoing highway projects, where the road inspectors find a compromise on quality standards by the concessionaires.

“There are a lot of complaints on poor quality of roads. The toll tax should be reduced on proposed highway projects if they are delayed or if there is reduction in quality of roads and also in the available space for the commuters,” said Vijay Chibber, secretary, ministry of roads, transport and highways, at the FICCI Infrastructure Summit here.

“We are proposing that the toll rates should be reduced to offset the degradation in the quality of roads, this is for future contracts, you can build it into the contract agreement,” said Chibber

The ministry is hopeful that this stern measure will ensure that projects that get constructed meet both the quality specifications and timeframe set by the ministry. Failing to meet the deadlines, there would be a provision in the contract itself where by one could reduce the tolling.

Responding to a query on chances of ministry’s participation in Infrastructure Debt Fund to bring in funds to sector, “The extent of contingent liabilities is not very clear, if the arrangements can be put in place without involving NHAI as a co-signatory that would be ideal for us,” said Chibber.

The first USD one billion IDF scheme was launched by the Finance Minister P Chidambaram in June, this year to accelerate and enhance the flow of long term debt in infrastructure projects for funding the government’s ambitious programme of infrastructure development.

Top government officials on Monday said new regulators for roads and railways will be set up soon, the latest in a series of moves aimed at allaying investors' fears over policy logjam in the infrastructure sector.

The roads regulator is expected to get all required clearances by Decemberend, a senior roads ministry official said at a FICCI summit on infrastructure in the city.

The role of a roads regulator is the subject of an ongoing debate, with several officials, including those in the Planning Commission, saying that all aspects of a road project are decided in the concession agreement and no such regulator exists anywhere else. Roads Secretary Vijay Chhibber, however, said, "Just because it doesn't exist anywhere doesn't mean we don't need it. We have come to a stage where we have identified the role that should be assigned to the regulator."

The ministry has envisaged two broad roles for the regulator—adjudicatory and advisory. In the adjudicatory role, the regulator will address dispute resolution, renegotiation of future contracts and enforcement of contractual provisions. In the advisory role, it will look into renegotiation of existing contracts, setting of service standards, tariff structuring and toll mechanisms and project entry and exit options, among others.

In a sign of what foreign investors can bring in for the sector, Canadian High Commissioner Stewart Beck, a participant in the summit, said his country could bring in its vast pension funds to finance India's infrastructure projects. "We have one of the strongest pension systems in the world and are willing to deploy these in infra building," Beck said.

Meanwhile, the railways ministry, in consultation with Law Minister Kapil Sibal, has resolved the issue of Section 29 (O) of the Rail Tariff Authority Act, which would identify exceptional situations where the railways can supersede the policy directives of the RTA.

"Essentially, we want to ensure that in case the authority pushes a decision that we feel is not legitimate, the government would have the power to overrule it," said Railway Board Chairman Arunendra Kumar.

Top government officials on Monday said new regulators for roads and railways will be set up soon, the latest in a series of moves aimed at allaying investors' fears over policy logjam in the infrastructure sector.

The roads regulator is expected to get all required clearances by Decemberend, a senior roads ministry official said at a FICCI summit on infrastructure in the city.

The role of a roads regulator is the subject of an ongoing debate, with several officials, including those in the Planning Commission, saying that all aspects of a road project are decided in the concession agreement and no such regulator exists anywhere else. Roads Secretary Vijay Chhibber, however, said, "Just because it doesn't exist anywhere doesn't mean we don't need it. We have come to a stage where we have identified the role that should be assigned to the regulator."

The ministry has envisaged two broad roles for the regulator—adjudicatory and advisory. In the adjudicatory role, the regulator will address dispute resolution, renegotiation of future contracts and enforcement of contractual provisions. In the advisory role, it will look into renegotiation of existing contracts, setting of service standards, tariff structuring and toll mechanisms and project entry and exit options, among others.

In a sign of what foreign investors can bring in for the sector, Canadian High Commissioner Stewart Beck, a participant in the summit, said his country could bring in its vast pension funds to finance India's infrastructure projects. "We have one of the strongest pension systems in the world and are willing to deploy these in infra building," Beck said.

Meanwhile, the railways ministry, in consultation with Law Minister Kapil Sibal, has resolved the issue of Section 29 (O) of the Rail Tariff Authority Act, which would identify exceptional situations where the railways can supersede the policy directives of the RTA.

"Essentially, we want to ensure that in case the authority pushes a decision that we feel is not legitimate, the government would have the power to overrule it," said Railway Board Chairman Arunendra Kumar.

A top finance ministry official on Monday said the rupee remained undervalued despite the recent rebound.

"There is something called intrinsic value of rupee. The intrinsic value of rupee comes from its purchasing power. The intrinsic value of rupee in real effective exchange rate (REER) terms could be somewhere between 58 and 60 (to a dollar)," said Arvind Mayaram, secretary in the Department of Economic Affairs, while addressing a function organised by industry lobby FICCI.

The rupee closed at an all-time low of 68.80 on August 28. The currency has since recovered more than 8%. The REER refers to nominal exchange rate that has been adjusted for inflation and purchasing power differential between two currencies.

Mayaram said he agreed there will be capital outflows from India when the US Federal Reserve decides to curb its monthly bond-buying programme, but added the government has enough "ammunition" to deal with the situation.

"I do believe when tapering happens there will be outflow of capital, but the fact also remains that we have enough ammunition... And, therefore, there is no room to be fearful of the rupee tanking," he said.

The US Fed had last week surprised the markets by deferring a decision to scale down its $85-billion bond-buying programme till the time there was more evidence of growth recovery in America.

The Indian currency had depreciated sharply after the US Fed first announced its intention to reduce the monetary stimulus on May 22, forcing the Indian government to announce a host of measures to check the current account deficit and spur capital inflows.

Mayaram said the country had foreign exchange reserves of $270 billion, and if they continued at the current rate, there could be about $40 billion additional capital inflows this year, adding that the government expects about $36 billion in foreign direct investment this year. In the first quarter, the country received $9 billion in FDI.

The DEA secretary said India had signed a $50-billion currency swap pact with Japan. Also, Brazil, Russia, China, India and South Africa have firmed up a $100-billion contingency fund.

Mayaram said he expected India's growth to bounce back to 8% in two years. "We are not satisfied with 5% growth. India's potential rate of growth is 8%. In the next two years, India will again start growing at 8%," he said.

India's GDP growth dropped to a four-year low of 4.4% in the first quarter of the current fiscal. In 2012-13, economy grew at a decade's low of 5%.

Mayaram said the decline in demand for bulk diesel, prices of which have been deregulated, will help the government save about $1 billion this fiscal.

He said the government was working on various ideas to encourage investments in infrastructure.

"In the next 2-3 months, there will be greater deepening of the equity and bond markets for financing of the infrastructure sector," he said. On the debt side, Mayaram said the government was trying to get the Employees Provident Fund Organisation (EPFO) to invest in infrastructure projects. "The employees do not have an appetite for risk", he said on the issue of EPFO not investing in equity. "We need to build the confidence in them that it is safe investment."

Even as the rupee's value on Monday fell to 37 paise from its previous level to close at 62.60 against the dollar, economic affairs secretary Arvind Mayaram said the intrinsic value of the currency in Real Effective Exchange Rate (REER) term could be somewhere between 58-60.

The rupee had touched a record 68.86 to a dollar last month.

The REER refers to the rate of currency vis-a-vis the value of currencies of major trading partners. In a bid to stop the slide in rupee value, the government and the RBI took many steps including import curbs on gold, restrictions on outward remittances by individuals and overseas investments by companies.

Mayaram also said the fall in demand for bulk diesel would help the government save about $1 billion this fiscal. On the possible impact of tapering of monetary stimulus by the US Federal Reserve, including a capital outflow, Mayaram said, "We have enough ammunition in our hand and therefore there is no room to be fearful of rupee taking a tanking."

Speaking at a FICCI event, he said the government will in the next 2-3 months take measures to deepen

the equity and bond markets for financing of the infrastructure sector.

On the equity side, Mayaram said in two months the government will announce an Infrastructure Trust Fund, which would be in the nature of Real Estate Investment Trust (REIT).

Under the new structure, the underlying revenue of a project will be transferred to a trust which will in turn issue units to investors, including foreign investors who want to buy the units.

Arvind Mayaram, Secretary, Department of Economic Affairs, stressed on the need to have a regulator for the road sector to handle disputes in projects being implemented on a public-private-partnership (PPP) basis.

He said Government officials do not have the capacity to deal with PPP projects where contracts between the Government and private sector span over 20-30 years, thus requiring constant interaction and adjustment between the two parties based on the changing circumstances.

“Traditionally, we were used to paying the private sector to do a job in two-three years, after which the relationship ended. How to manage relationships in post award framework is an area where there is scope for improvement,” Mayaram said speaking at a FICCI conference here on Monday.

The regulator can help manage when the Government’s relationship with the private sector gets rocky, said Mayaram.

Omnibus Bill

Incidentally, the Planning Commission has taken a stance against the idea of having a road sector regulator to deal with such issues. It has rather supported the idea of an omnibus Bill, which will spell out ways for dealing with disputes in PPP projects.

Infrastructure

The Government has been increasingly wooing the private sector to build infrastructure through public private partnership basis.

In 2005, it decided to bid out all road projects on BOT-toll mode first, where the private developer designs, finances and builds a road, maintains it, collects toll from users for a long-term period. Vijay Chhibber, Secretary, Road Transport and Highways, said the Ministry is working on a proposal to have a regulator, as was announced in the Finance Minister P. Chidambaram’s Budget speech this year.

Advisory role

The regulator would have an advisory role on renegotiation of existing contracts, setting of service standards, project entry and exit options, tariff structuring and toll mechanism and knowledge management, according to the proposal under the consideration of the Road Ministry.

It would also have an adjudicatory role on contract dispute resolution, renegotiation of future contracts and enforcement of contractual provisions.

This is for the first time that the Highways Ministry has officially spelled out its detailed proposal for the regulator.

The government is working on various steps, including deepening of the bond market and setting up of a Fund, to promote debt and equity investment in the infrastructure sector, a finance ministry official said today.

"In the next 2-3 months there will be greater deepening of the equity and bond markets for financing of the infrastructure sector," Economic Affairs Secretary Arvind Mayaram said at a FICCI event here.

On the debt side, the government is making efforts to develop the corporate bond market and encourage Employees Provident Fund Organisation (EPFO) to invest in infrastructure projects, he said.

Regretting that EPFO is not willing to take risk and participate in equity "as the employees do not have appetite for risk", he said "we need to build the confidence in them that it is safe investment".

On the equity side, Mayaram said in two months the government will come up with Infrastructure Trust Fund, which would be in the nature of Real Estate Investment Trust (REIT).

Under the new structure, underlying revenue of a project will be transferred to a trust which will issue units to investors, including foreign investors who want to buy the units.

Mayaram said it was important to engage overseas pension funds and sovereign wealth funds and that once they come Indian investors would also follow suit.

He said the government is working with the Reserve Bank to ensure that extension of the term of infrastructure sector loan, once it is shifted to Infrastructure Debt Fund (IDF), is not treated as restructuring of loan.

"We are working with RBI to ensure that when IDF steps in, takes over the loan portfolio of a project, it should be incentivised to stretch the debt rather than keep it pari passu with the debt which was given by the banks and it should not be treated as restructuring of the debt," he said.

Mayaram said the debt of IDFs should be stretched for 15-20 years to attract long term pension funds or Sovereign Wealth Funds (SWFs).

Mayaram said once the funding for these projects are taken over by the IDF, the interest rate should come down as the construction risk has already been borne by the banks which have provided funds in the initial stage.

The government has come out with the IDF framework as a new category of financial intermediaries to help garner long-term and low cost funds for the country's infrastructure sector.

The investment need in the sector are estimated at $1 trillion in the five-year period ending March 2017 and 50% of it is expected to come from the private sector.

Currently three IDFs are operational -- one promoted by ICICI Bank, another with lead partner IIFCL and third one promoted by IL&FS-LIC.

The government is working on various steps, including deepening of the bond market and setting up of a Fund, to promote debt and equity investment in the infrastructure sector, a finance ministry official said today.

"In the next 2-3 months there will be greater deepening of the equity and bond markets for financing of the infrastructure sector," Economic Affairs Secretary Arvind Mayaram said at a FICCI event here.

On the debt side, the government is making efforts to develop the corporate bond market and encourage Employees Provident Fund Organisation (EPFO) to invest in infrastructure projects, he said.

Regretting that EPFO is not willing to take risk and participate in equity "as the employees do not have appetite for risk", he said "we need to build the confidence in them that it is safe investment".

On the equity side, Mayaram said in two months the government will come up with Infrastructure Trust Fund, which would be in the nature of Real Estate Investment Trust (REIT).

Under the new structure, underlying revenue of a project will be transferred to a trust which will issue units to investors, including foreign investors who want to buy the units.

Mayaram said it was important to engage overseas pension funds and sovereign wealth funds and that once they come Indian investors would also follow suit.

He said the government is working with the Reserve Bank to ensure that extension of the term of infrastructure sector loan, once it is shifted to Infrastructure Debt Fund (IDF), is not treated as restructuring of loan.

"We are working with RBI to ensure that when IDF steps in, takes over the loan portfolio of a project, it should be incentivised to stretch the debt rather than keep it pari passu with the debt which was given by the banks and it should not be treated as restructuring of the debt," he said.

Mayaram said the debt of IDFs should be stretched for 15-20 years to attract long term pension funds or Sovereign Wealth Funds (SWFs).

Mayaram said once the funding for these projects are taken over by the IDF, the interest rate should come down as the construction risk has already been borne by the banks which have provided funds in the initial stage.

The government has come out with the IDF framework as a new category of financial intermediaries to help garner long-term and low cost funds for the country's infrastructure sector.

The investment need in the sector are estimated at $1 trillion in the five-year period ending March 2017 and 50% of it is expected to come from the private sector.

Currently three IDFs are operational -- one promoted by ICICI Bank, another with lead partner IIFCL and third one promoted by IL&FS-LIC.

The toll tax should be reduced on proposed highway projects if they are delayed and there is reduction in quality of roads and also in the available space for the commuters, Road Secretary Vijay Chibber said.

"We are proposing that the toll rates should be reduced to offset the degradation in the quality of roads, this is for future contracts, you can build it into the contract agreement," Chibber told reporters at the FICCI Infrastructure Summit here.

This will ensure that the project will get constructed in the timeframe that is assigned to it and if the projects are not completed within that timeframe there would be a provision in the contract itself whereby you can reduce the tolling, he said when asked whether the government is proposing scrapping the toll tax on under construction road projects.

Meanwhile, On the Road Ministry's participation in the Infrastructure Debt Fund, Chibber said once the contingent liability part for the National Highways Regulatory Authority is made clear.

"The extent of contingent liabilities is not very clear, if the arrangements can be put in place without involving NHAI as a co-signatory that would be ideal for us," he said.

The first USD 1 billion IDF scheme was launched by the Finance Minister P Chidambaram in June, this year. The fund is aimed at catalysing investments by way of securitised debt instruments of infrastructure projects.

The IDF scheme will mainly undertake investment in debt securities or securitised debt instruments of infrastructure companies, infrastructure capital companies or infrastructure projects, SPV (special purpose vehicle).

Economic Affairs Secretary Arvind Mayaram has said the government will set up an "infrastructure investment trust" by end-2013 to stimulate investments in infrastructure sector.

He said the proposed trust will help speed up projects and nurture a strong long-term relationship between sponsoring authorities and private partners.

"In the next two-three months there will be greater deepening of the equity and bond markets for financing of the infrastructure sector," Mayaram said on Monday at an event organised by the Federation of Indian Chambers of Commerce and Industry.

The proposed trust will manage the projects over a longer period of time and function in similar way as Real Estate Investment Trusts.

It will do away with the current practice of private players turning into developers whose interest is limited to merely contracting for construction and are not attuned to a long-term relationship with the government.

Under the new set up, underlying revenue of a project will be transferred to a trust which will issue units to investors, including foreign investors who want to buy the units.

"A major reason why some PPP projects in the infrastructure sector have run into problems is that many private partners did not price the risk in projects over a 25-year time frame," said Mayaram, adding that even officers in the public sector do not have the capacity to carve out a long-term relationship with the private sector.

He said the government was working on various plans to stimulate investments in the infrastructure sector. These include deepening of bond markets and encouraging investments from pension funds and Employees Provident Fund Organisation (EPFO).

Arvind Mayaram, Secretary, Department of Economic Affairs, stressed on the need to have a regulator for the road sector to handle disputes in projects being implemented on a public-private-partnership (PPP) basis.

He said Government officials do not have the capacity to deal with PPP projects where contracts between the Government and private sector span over 20-30 years, thus requiring constant interaction and adjustment between the two parties based on the changing circumstances.

“Traditionally, we were used to paying the private sector to do a job in two-three years, after which the relationship ended. How to manage relationships in post award framework is an area where there is scope for improvement,” Mayaram said speaking at a FICCI conference here on Monday.

The regulator can help manage when the Government’s relationship with the private sector gets rocky, said Mayaram.

Omnibus Bill

Incidentally, the Planning Commission has taken a stance against the idea of having a road sector regulator to deal with such issues. It has rather supported the idea of an omnibus Bill, which will spell out ways for dealing with disputes in PPP projects.

Infrastructure

The Government has been increasingly wooing the private sector to build infrastructure through public private partnership basis.

In 2005, it decided to bid out all road projects on BOT-toll mode first, where the private developer designs, finances and builds a road, maintains it, collects toll from users for a long-term period. Vijay Chhibber, Secretary, Road Transport and Highways, said the Ministry is working on a proposal to have a regulator, as was announced in the Finance Minister P. Chidambaram’s Budget speech this year.

Advisory role

The regulator would have an advisory role on renegotiation of existing contracts, setting of service standards, project entry and exit options, tariff structuring and toll mechanism and knowledge management, according to the proposal under the consideration of the Road Ministry.

It would also have an adjudicatory role on contract dispute resolution, renegotiation of future contracts and enforcement of contractual provisions.

This is for the first time that the Highways Ministry has officially spelled out its detailed proposal for the regulator.

The finance ministry is in talks with the Reserve Bank of India (RBI) to liberalize the rules to allow newly created infrastructure debt funds (IDFs) to take over, or assume, more loans from banks without having to set aside money if they later restructure the loans.

At present, if IDFs extend the tenure of such debt instruments, the central bank categorizes them as restructured loans, increasing the provisioning requirements.

Former finance minister Pranab Mukherjee had in his 2011-12 budget speech proposed setting up IDFs to act as investment vehicles for refinancing the existing debt of infrastructure firms, thereby creating headroom for banks to lend to new infrastructure projects.

IDFs can take over loans extended by banks to infrastructure projects that are created through public-private partnerships and have completed one year of commercial operations.

“IDFs must develop long-term appetite and we are now working with the RBI to ensure that when the IDF steps in and takes over the loan portfolio of a project, actually it should be incentivized to stretch the debt tenure and it should not be considered as restructuring of the debt,” economic affairs secretary Arvind Mayaram said. He said at an infrastructure conference organized by the industry lobby Federation of Indian Chambers of Commerce and Industry that only after the tenure of the loans is stretched to 15 or 20 years would pension funds and sovereign funds invest in IDFs because they want long-term assured return rather than short-term return. “This will also help banks get out of it and lend afresh,” he added.

A senior official in an infrastructure financing firm who spoke on condition of anonymity said while an exception for IDFs could be made, RBI would look at the impact of such a decision on the larger economy before taking a decision. “RBI will look at it as a systemic issue. There may be a justification for IDFs, but it could have a chain effect on other non-banking financial institutions and banks, which RBI would like to avoid,” he said.

The government has so far announced three IDFs to be set up by both public and private financial institutions. Finance minister P. Chidambaram in February launched the India Infradebt Ltd (Infradebt) by handing over the first IDF-NBFC (non-banking financial company) licence. The promoters of Infradebt, led by ICICI Bank Ltd, include Bank of Baroda, Citibank NA and Life Insurance Corp. of India.

In July, credit rating agency Crisil Ltd assigned an “AAA” credit rating to Infradebt, which has awarded its first sanction letter to a project by the Jaiprakash group for the refinancing of a road project in the Zirakpur–Parwanoo section of National Highway 22 built by Himalayan Expressway Ltd. Mayaram said the government is making efforts to develop a corporate debt market to finance the near $1 trillion infrastructure funding requirements of the country during the 12th five year plan (2012-17).

“We are making all efforts to move in that direction. It is a little more complex than government making a policy decision because it also needs appetite in the minds of the investors,” he added. Mayaram said taking over debts by the IDFs after the construction of the projects could also lower interest rate cost for the project.

“I believe once the construction risk is over, when the IDF kicks in, then they should be able to bring in lower interest rate. That would have to develop over a period of time and not immediately. Because that kind of risk assessment would require very sophisticated skills and also a lot of data based on which you can make long-term projections on that,” he said.

The finance ministry is also planning to establish investment infrastructure trust funds in the next two months in line with the Real-Estate Investment Trusts (REITs) in Singapore, Mayaram said.

In a bid to stimulate investments in the infrastructure space, the government will launch infrastructure investment trusts by November-end this year.

This was stated today by Arvind Mayaram, Secretary, Department of Economic Affairs, Ministry of Finance, while speaking at FICCI’s 5th India Infrastructure Summit 2013.

Like the Real Estate Investment Trusts (REITs), the Infrastructure Investment Trusts (IITs) will manage the projects over a longer period of time to do away with the current practice of private players turning into developers whose interest is limited to merely contracting for construction and are not attuned to a 25-year relationship with the Government.

"A major reason why some PPP projects in the infrastructure sector have run into problems is that many private partners did not price the risk in projects over a 25-year time frame," Mayaram said, adding even officers in the public sector do not have the capacity to carve out a long-term relationship with the private sector.

The government is working on various steps, including deepening of the bond market and setting up of a fund to promote debt and equity investment in the infrastructure sector.

Mayaram said in the next two-three months there will be a greater deepening of the equity and bond markets for financing of the infrastructure sector.

On the debt side, the Government is making efforts to develop the corporate bond market and encourage the Employees Provident Fund Organisation (EPFO) to invest in infrastructure projects, he said.

Regretting that EPFO is not willing to take risks and participate in equity “as the employees do not have an appetite for risk”, he said “we need to build confidence in them that it is a safe investment”.

On the equity side, Mayaram said in two months the Government would come up with an Infrastructure Trust Fund, which would be in the nature of a Real Estate Investment Trust (REIT).

Mayaram said it was important to engage overseas pension funds and sovereign wealth funds and that once they come Indian investors would also follow suit.

He said the Government was working with the Reserve Bank to ensure that extension of the term of the infrastructure sector loan, once it is shifted to the Infrastructure Debt Fund (IDF), is not treated as restructuring of loan.

The investment need in the sector is estimated at $1 trillion in the five-year period ending March 2017 and 50 per cent of it is expected to come from the private sector.

The draft rules of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act would be ready on September 30, Rural Development Minister Jairam Ramesh said on Thursday.

Speaking at an interactive session organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), Jairam Ramesh, who passionately defended the processes for land acquisition provided in the new law, said these were a response to decades of injustice done to masses in the name of development.

He, however, assured industry he would consult it in the making of the rules. Accepting a request from FICCI, he announced the setting up of a rules advisory committee, including members of the industry, to vet the draft rules and guidelines of the Act. He said comments would be invited for a whole month, after which the rules would be finalised.

Ramesh agreed with concerns that the procedures outlined in the Act would certainly raise the economic cost of land acquisition. But it is also true that it would lower the social and political cost considerably, he said.

He said in two decades, there would be no need for a land acquisition Act as acquisition, he hoped, would by then be replaced by purchase based on bilateral negotiations.

The minister said both the private sector and the government should stop acquisition of land by then, as that was the fairest way.

He said some of the concerns of industry were valid, that the procedures involved in acquisition would delay the process. But this would happen only if time lines mentioned in the Act were not kept. If time lines were kept, there would be no delays. He also clarified many points raised by industry. He said the retrospective clause in the Act pertained only to compensation and nothing else.

The minister also clarified that land could be taken possession of if the R & R (relief & rehabilitation) process is started. It does not have to be completed for land to be taken, he said.

R & R might take six to seven years, he said. Industrialists taking part in the interactive session pointed out concerns regarding the consent taking process. They said it would be next to impossible to get the consent of 80 per cent of land owners for a piece of land to be acquired by the government.

If consent was there, then it would have been purchased, pointed out a participant, underlining the irony of the Act which seeks to get land through consent from reluctant owners.

Another participant pointed out that payment of compensation that is four times the market value would multiply the price of the land available for purchase, and in turn, trigger higher compensation and lead to a vicious circle.

Claiming that the new land acquisition law will be "socially and politically acceptable” as it ends forcible land grabbing, rural development minister Jairam Ramesh said on Thursday he was open to changes in the new legislation if India Inc faces inordinate delays in buying land for its projects.

The land Bill was passed by Parliament in the monsoon session and the government is in the process of drafting rules for compensations under the land laws. The rules will be framed by September 30, 2013, Ramesh told industrialists at a FICCI conference.

Although some industrialists see land costs rising 4-5 times under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act and delays over social impact assessment becoming a drag on industrial expansion, Ramesh tried to allay such fears, citing a brokerage report saying land costs now make up for less than 5% of the overall capital expenditure of large infrastructure projects.

"I am great believer of industrialisation. But you can't have industrialisation at gunpoint. You can't have industrialisation followed by large-scale protests," Ramesh said. "The new Act will be socially and politically acceptable even if it may be financially expensive," he said, adding "if time lines are adhered to, it (land acquisition) will take 36 months." The new law will also eliminate any element of discretion by government officials in fixing land prices, he said.

"If in the process of implementation we face any problem, I will be the first person to propose an amendment. Nothing is carved in stone," the minister said, assuring industry of creasing out irritants that may crop up while implementing the land laws.

The minister also brushed aside fears that the retrospective clauses on compensation would hurt investors as was the case when the finance ministry came up with the General Anti-Avoidance Rule (GAAR) for taxing MNCs' past acquisition deals. "(The new land laws) are not GAAR," he said, adding that retrospective clauses on compensation to farmers for past land deals come with caveats.

Ramesh agreed with FICCI senior vice-president Sidharth Birla for creation of a rules advisory committee consisting of relevant government departments, industry and appropriate stakeholders, which could be institutionalised so as to avoid arbitrary changes.

Rules regarding the land acquisition Bill, which was recently cleared by Parliament, will be notified within two months and would address the concerns of industry and other stakeholders, Rural Development Minister Jairam Ramesh said Thursday.

An advisory committee will be set up to vet the rules in consultations with various stakeholders, Ramesh said during an interaction with industry leaders on the Act, organised by FICCI.

When FICCI vice-president Sidharth Birla voiced industry's concerns over the new Act, Ramesh said, "I take the suggestion made by Mr Birla very seriously. We will immediately notify the Rules Advisory Committee and it should vet the draft rules as well. We will put the draft rules and guidelines in public domain for comments and suggestions and then finalise them. Thereafter, the Act will be notified," Ramesh said.

Rules regarding Land Acquisition Bill, which was recently cleared by Parliament, will be notified within two months and would address the concerns of industry and other stakeholders, Rural Development Minister Jairam Ramesh said here today.

An advisory committee will be set up shortly to vet the said rules in consultations with various stakeholders and others concerned, Ramesh said during an interaction with industry leaders on the Act, organised by FICCI.

When FICCI Vice-President Sidharth Birla voiced industry's concerns over the new Act, Ramesh said, "I take the suggestion that is made by Mr Birla very seriously... We will immediately notify the Rules Advisory Committee and it should vet the draft rules as well."

He said that the Rules Advisory Committee will involve a lot of stakeholders, including industry players.

"We will put the draft rules and guidelines in the public domain. We will give one month for comments and suggestions from states and stakeholders and then finalise the rules and guidelines.

"Thereafter, the Act will be notified," Ramesh said.

The "Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013", he said, had surprised everybody with its successful passage.

"Nobody expected that the Bill would be passed. I think industry was very complacent. They thought this will never materialise... Somehow... The Act materialised," he said.

The recently passed land bill's retrospective clause for dealing with the troubled history of land acquisition in India does not apply to instances less than five years old, Rural Development Minister Jairam Ramesh said Thursday.

"The retrospective clause will apply to cases where land acquisition proceedings were initiated five years ago or earlier," Ramesh told an interactive meet here on the Land Acquisition, Rehabilitation and Resettlement Bill, 2012 organised by the Federation of Indian Chambers of Commerce and Industry (FICCI).

"There are old projects, some where proceedings for acquisition are 15 years old, where things are lingering because of some underlying problems which need to be resolved," Ramesh said.

The retrospective clause in the new land bill will apply in three situations -- if the award of land has not been announced under the old act; where the award has been announced but physical possession of the land has not been taken; and where a majority of farmers have not accepted compensation.

In all these cases, compensation will be as per the new act.

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2012 aims to replace a law enacted by the British in 1894.

The new act is retrospective only in relation to compensation, not in relation to rehabilitation and resettlement (R and R), nor procedure, Ramesh clarified.

The compensation has also been significantly increased under the new law. It suggests compensation for the owners of the acquired land to be four times the market value in case of rural areas and twice in case of urban areas.

A key feature of the bill is that the consent of 80 percent of land owners concerned is needed for acquiring land for private projects and of 70 percent landowners for public-private projects.

"Public purpose", as per the bill, includes mining, infrastructure, defence, manufacturing zones, roads, railways, and ports built by government and public sector enterprises.

"This central legislation establishes a minimum base line, for a law that is for land acquisition, not for land purchase. If industry wants to go and buy the land, they are perfectly free to buy the land," the minister said.

The rural development ministry expects to put out the draft land acquisition rules in two-to-three weeks for inviting public comments, while the final norms are expected in the next two-to-three months.

Union Rural Development Minister Jairam Ramesh on Thursday said that the recently enacted Land Acquisition Bill would protect the rights of the farmers who were rendered landless.

He asserted that protecting rights of landowners as well as the landless would act as a guiding principle for the newly formulated law.

"What we should do in this act is not only protect the interests of the land owners but also somehow protect the concerns and interests of the landless and those livelihood are lost on account of land acquisition. So it is not just land owners but even the landless who should benefit from this act," he said while addressing a conference at the Federation of Indian Chambers of Commerce and Industry (FICCI) here.

The bill, which will replace a century-old law, is historic and revolutionary as it seeks to provide fair and just compensation to farmers and to those who lose their livelihood on account of acquisition.

Commenting on this, Ramesh highlighted the flaws of the old Bill.

"The 1894 Act was fundamentally flawed because it was a colonial era legislation which gave draconian powers to the collectors and to the state governments and it had resulted in a situation where land acquisition became a matter of intense conflict across the country," he added.

The new bill proposes that farmers and landowners be paid up to four times the market value for land acquired in rural areas, and two times the market value in urban areas.

The other significant aspect of the Bill is that the consent of 80 percent of landowners is needed for acquiring land for private projects and of 70 percent landowners for public-private projects.

Rural development minister Jairam Ramesh on Thursday tried to assuage the concerns expressed by Indian industry over the new land acquisition legislation saying his ministry would set up an advisory committee that would take on board their concerns while framing the rules for land acquisition according to provisions of the new law.

In his first address to Indian business after getting the controversial land acquisition Bill through both Houses of Parliament, Ramesh said there could be no acquisition of land for urbanization and industrialization at “gunpoint”.

But he accepted a suggestion put forth by some industry representatives at the meeting organized by the Federation of Indian Chambers of Commerce and Industry (Ficci), a business lobby group, that industry views be accommodated when the government frames rules ahead of implementing the law.

“We will set up a rules advisory committee...I think it’s a good way of institutionalizing interaction (between industry and the government). The rules advisory committee should vet the draft rules as well,” Ramesh said.

The rules would be made public by 30 September, after which it would be put into the public domain for comments, the minister said.

“This Bill only applies to land acquisition, industry is free to go and buy land,” Ramesh said.

The Right to Fair Compensation, Resettlement, Rehabilitation and Transparency in Land Acquisition Bill, 2013, was passed by the Lok Sabha on 29 August and the Rajya Sabha on 4 September.

It replaces an 1894 Act and seeks to strike a balance by providing fair compensation for the land acquired from farmers for industrial projects, but industry representatives fear the law will escalate land costs, hurting sectors like manufacturing.

The minister also said that his ministry would also be setting up a mechanism for the constant review of the law to address problems faced by the Indian industry in acquiring land.

Pointing out that the misuse of the 1894 Act had led to the spread of left-wing extremism, Ramesh said the financial cost of acquisition would go up due to the new Bill but the social cost of acquisition would come down.

On one of the concerns expressed by Indian industry over the application of the retrospective clause that says that steeper compensation provisions contained in the new law would apply, Ramesh said this clause would not be randomly implemented but only under three specific cases.

Ramesh said that consent, compensation, rehabilitation and resettlement and process and procedure formed the core of the new law.

“This is the very first law that links land acquisition and the accompanying obligations for resettlement and rehabilitation,” he said urging industry to give the law a chance.

As the industry voice over the Land Bill and Food Bill, especially the former, got drowned in the unanimous passage of the two Bills in Parliament, Deccan Herald’s Annapurna Singh spoke to A Didar Singh, secretary general, Federation of Indian Chamber of Commerce and Industry.

The Land Bill and Food Bill passed by Parliament have not been without critics. What are your views?

With regard to the Land Bill, we feel that the government needs to ensure not just fair compensation but a sustainable model of economic development for the country. The consensus reached at the political level on the Bill may perhaps have discounted the larger perspective of overall economic requirements especially of the business. Some fundamental concerns of the industry remain unaddressed in the Bill and any further acquisitions for industrialization will not only take 4 to 5 years but will also probably cost 4 to 5 times the present cost.

It may become unviable to expand or establish new industry.

The Food Security Bill has also been passed and it reflects extension of the ‘rights-based approach’ of the government. Though the Bill has a strong rationale behind it, the roll out of such a programme at this juncture when we face an acute economic crisis could have been analysed properly.

One of the most pertinent questions that comes to fore is justifying the target group comprising 75 per cent of the rural population and 50 per cent of the urban population, because in its true spirit, the Food Security Bill should be aimed at providing benefits to the poorest of the poor. We also need to consider implications of a natural event such as a weak monsoon that would affect food production and force the government’s hands to look at large-scale imports of food grains.

What do you think of Land Acquisition Bill in terms of project costs; of acquisition by the industry as acquisition by the government will not take place for private projects; on the compensation which is much higher than what the industry is used to paying?

The State needs to have a facilitating role in land acquisition for the industry. We appreciate that infrastructure and Public-Private-Partnership projects are going to be under ‘public purpose’ thereby enabling government to acquire land for use for such projects. However, for large manufacturing projects which often face last mile acquisition problems, the government will not assist the industry in acquiring land as manufacturing is out of the definition of ‘public purpose’. The high cost of acquisition will be because ‘solatium’ is set to increase from the current norm of 30 to 100 per cent and the industry will have to provide R&R.

The Bill says that if the acquired land remains unutilized for five years, it should be returned to the owners. Is it a fair provision?

In India, projects await clearances for more than five years before implementation. In the absence of definition of the word ‘unutilised’, this provision can create problems for the industry.

As regards the populist Food Bill, concerns have been expressed over the subsidy outgo and the staggering expenditure it requires.

There is no doubt the bill is going to impose enormous burden on the exchequer and at this point in time we can ill-afford such a huge cost. The actual expenditure after accounting for cost of execution is expected to be much higher. The prime minister recently indicated that more difficult reforms like curtailing subsides, improving the regulatory framework etc should be looked at. We hope to see some serious action on this front as all these would boost growth and lead to more resource generation for the government with which it can support welfare programmes.

What FICCI would like to suggest to the RBI on bringing the economy and rupee on track?

The foremost step the new Governor should take is to lower the interest rates to enable a cut in lending rates by banks. Industrial growth has been dented by slowing corporate investments and a cut in it at this juncture would serve as a breather to ailing economic growth.

The Central Bank should also take active steps to strengthen the corporate bond markets for long term funding to reduce the pressure on banks on long-term lending and to diversify the debt-risk beyond the banking system. We want the Central Bank to expedite the issue of new bank licenses to usher in greater competition in the sector and improve access to financial services by the masses.

It can consider issue of rupee bonds to NRIs after giving due consideration to the costs and removal of all restrictions on interest rates on foreign currency deposits.

Expressing concern over the new Land Acquisition Bill, Maharashtra Chief Minister Prithviraj Chavan said here on Friday that it might push up land acquisition costs.

"The new Land Acquisition Bill worries us as the cost will go up. We need to see how this Bill impacts domestic projects in state," Chavan told reporters here at a FICCI National Executive Committee meeting here.

He said that land acquisition was a major hurdle for the state to implement projects at the ground level.

"Land acquisition is a major hurdle. Under our land acquisition model, we plan to give 22.5 percent developed land to holders or owners, against the 12.5 percent earlier, instead of hard cash, in an area with potential of price appreciation," he said.

Chavan also said that Maharashtra was considering a stimulus package to the industry in order to survive the current economic slowdown, policy change and depreciating rupee.

"We are in the process of considering a stimulus package for the industry so that they survive the current economic slowdown, policy change and depreciating rupee," he said.

He said that he would take a delegation to New Delhi about it, adding that there is a need to regulate the transport sector to resolve road toll and airport fees issues among others.

"There is a need for a regulatory mechanism to settle the dispute for the transport sector that will help resolve issues like road toll, airport fees," he said.

Maharashtra could opt to give the Mumbai Trans-Harbour Link (MTHL) project to take the engineering, procurement, construction or the annuity route, he said.

Maharashtra chief minister Prithviraj Chavan is worried about the Land Acquisition Bill which he feels, creates major hurdle in land acquisition for the state to implement projects at the ground level and might push up land acquisition costs.

The Lok Sabha passed the bill on Thursday night. The bill which be brought in the Rajya Sabha is the flagship programme of the Congress. “The new Land Acquisition Bill worries us as the cost will go up. We need to see how this Bill impacts domestic projects in state,” Mr Chavan told reporters here at a FICCI national executive committee meeting.

“Land acquisition is a major hurdle. Under our land acquisition model, we plan to give 22.5 per cent developed land to holders or owners, as against the 12.5 per cent earlier, instead of hard cash, in an area with potential of price appreciation,” he said.

Mr Chavan also said that the Maharashtra government is considering a stimulus package to the industry in order to survive the current economic slowdown, policy change and depreciating rupee.

“We are in the process of considering a stimulus package for the industry so that they survive the current economic slowdown, policy change and depreciating rupee,” he said.

He said that he would take a delegation to New Delhi about it, adding that there is a need to regulate the transport sector to resolve road toll and airport fees issues among others.

The current Land Acquisition Bill is something industry is eagerly waiting for but has reservations on several clauses, which if not changed or defined properly would only add up to costs. In an interview with FE, FICCI President Naina Lal Kidwai articulates the concerns over such clauses. Edited excerpts:

Do you think the proposed Land Bill will raise the cost of acquiring land?

The Bill not only wants industry to pay for compensation for land to landowners but also for the rehabilitation and resettlement (R&R) of affected families. Compensation and R&R, as per the Bill, is set to increase the prices and cost of acquisition by six to seven times. The Bill also wants industry to pay for 25 infrastructure facilities as part of R&R.

Do you think the time taken to acquire the land would also go up?

One of the major concerns we have is the time required to acquire any land now will increase significantly. The time required for acquiring land for industry will be five to six years on average since a number of steps have been added to the whole process. There is social impact assessment (SIA), public hearing for SIA, evaluation of the SIA report by an expert group, getting 80% consent and validating it in the SIA report, public hearing for R&R, etc, which will not take less than five years to complete.

How do you view the R&R provisions? Would they help the industry in acquiring land or it would make the entire process much more cumbersome?

The Bill continues to prescribe for consent of 80% of affected families for acquisition for private sector projects and 70% for PPP (public-private partnership) for the defined public purpose. Affected families and not the landowners have been made the basis for consent requirement for any acquisition and the definition of affected family includes agricultural labourers, tenants including any form of tenancy, share-croppers or artisans who may be working in the affected area for three years prior to the acquisition, whose primary source of livelihood stand affected by the acquisition of land. This definition of project-affected families is too wide and it would be practically impossible to identify the genuine affected families and attain their consent.

The Bill says that if the land remains unutilised for five years, it should be returned to the owners or to the state land bank. Is this a fair provision?

The period for the return of unutilised land has been reduced to five years from 10 years in the Bill. Now in case of infrastructure projects like industrial corridors the project does not take off before five years because of problems in clearances. So what is the definition of ‘unutilised’ needs clarity and also five years could be a small time period for many infrastructure projects depending upon the definition adopted for unutilised land.

There’s a provision that if the buyer sells to a third party, then 40% of the appreciated value needs to be shared with the original owners. Is this acceptable to industry?

This comes on top of the increased R&R and compensation amount to be paid and will create problems in tracing the original land owners after some years.

Aiming to strike a balance between the needs of India Inc on the one hand and landowners and other stakeholders on the other, the land acquisition Bill, while running the risk of falling between two stools, contains a slew of pragmatic clauses that have been broadly welcomed by corporate India, and the Centre can best hope that the legislation will serve as a benchmark for states

The Right to Fair Compensation, Resettlement, Rehabilitation and Transparency in Land Acquisition Bill, 2011, first-tabled in Parliament in September 2011, was passed by the Lok Sabha on Thursday after vetting by the relevant House committee and the formation of an all-party near-consensus in April this year on some of the key provisions. The Bill, which has taken several years to take shape, seeks to annul and replace the Land Acquisition Act, 1894, which, for its opaque “eminent domain” clause reminiscent of the colonial-era, became a tool in the hands of many administrations to usurp private property from the weak and hapless under the garb of public purpose and transfer it, by stealth, to the favoured.

For the record, the proposed piece of legislation aims to bring transparency and optimum ease in acquisition of land by the state for its own use and in aiding private enterprises to get land for activities defined as “public purpose”, which includes production of goods and provisioning of services.

That the jury is still out on the efficacy of the Bill is clear from rural development minister Jairam Ramesh, the architect of the Bill, receiving both bouquets and brickbats. Ramesh has tried to strike the “right balance” between the industry’s mandate to prosper and propel growth and defining, reasonably and justly, and the right of the land owner/farmer to decide whether to part with his property and also his right to fair compensation in case of alienation of land and adequate rehabilitation. The Bill is, therefore, equipped with a consent clause, a compensation clause and a resettlement and rehabilitation (R&R) clause — all well-defined.

The Parliamentary standing committee had argued against the government acquiring land for private firms or PPP projects even when public interest is involved. Ramesh, however, retained the proviso for acquisition of land by the government for PPP projects. Also, in a pragmatic approach, and in what would increase land availability for industry, the Bill provides for acquisition of up to 5% multi-crop land of a district as “last resort”, with a rider that an equal area of wasteland in that district will have to be developed.

Industry — hamstrung by long delays and procedural hurdles in getting land for their projects — has broadly welcomed the Bill, as modified following the April consensus, even as it is unconvinced that the codification in the Bill would create uniformity of norms and standards across states and would keep the cost of land acquisition at reasonable levels. One view is that the courts might strike down the R&R obligations on the industry, for Parliament’s lack of jurisdiction to impose such conditions on private purchase of agricultural land.

India Inc also feels the compensation and R&R requirements proposed would increase the cost of land acquisition by six to seven times (The Bill says compensation for the owners of the acquired land shall be four times the market value in rural areas and twice in urban areas). The Bill also prescribes that consent of 80% of “affected families” is a must for acquisition for private-sector projects and 70% for PPP projects for the defined public purpose. The government will acquire land for larger projects while industry can directly purchase land subject to an upper limit of 100 acres in rural areas and 50 acres in urban localities. India Inc believes that this is too onerous. It could be extremely time-consuming, if not frustrating, to secure such consent.

Purchase of large parcels of land by private companies is what will lead to R&R obligations. The industry contends that application of R&R to purchase land from willing buyers defies economic logic. The industry is worried that it needs to pay for 25 infrastructure facilities as part of R&R; further, it wants its R&R contribution to be put in an escrow account and ongoing commitments like annuities and other benefits to be administered by another designated agency.

Another concern of the industry is about the reported plan to provide in the Bill for land to be leased to industry in addition to acquisition. The stated purpose of this move is to ensure that ownership remains with the farmer and he gets a regular income. Industry body FICCI says although a lease might significantly reduce the front-end outlays, it has inherent uncertainty regarding renewals, particularly when the period is short. Besides, FICCI says, a lease may restrict flexibility over development and operations, and leased land would impact mergers & acquisitions as there are obvious limitations to the automatic transmission of leases in rearrangements. The Bill stipulates that where acquired land is sold to a third party for a higher price within 10 years of the acquisition, then 40% of the appreciated land value will have to be shared with the original owners. While land owners would wholeheartedly welcome this, the industry won’t.

The new land Bill is undoubtedly an improvement upon the current state of affairs, which is marked by an absence of transparent pan-India system for land acquisition by industry and by the government for development purposes. But it falls short of being ideal for various reasons mentioned above. Land policies being on the State List of the Constitution, what best the Centre can expect is that states would adopt the central law as a benchmark while framing their policies.

FICCI has said that the new Land Acquisition Bill will make land, a key factor of production, scarce and expensive. The contentious Bill was passed by the Lok Sabha on Thursday. Dr A Didar Singh, FICCI secretary general, said, "This (Bill) certainly does not augur well for India's manufacturing sector. Jobs can be created only if we are able to give the necessary impetus to the manufacturing sector in India. However, with the passage of the Bill, the cost of land will not only rise significantly, even the process of acquiring land will be stretched by a period of four to five years."

FICCI hopes that going forward, the acquisition process will be simplified. "We hope the government will extend all assistance to the private sector in acquiring land," Singh said.

After the passage of the Food Security Bill, the Lok Sabha on Thursday gave its nod to adopt the Land Acquisition Bill.

The passage has brought some cheer to select listed real estate companies that are already siting on huge parcels of land. The S&P BSE Realty index has gained nearly 1% as compared to the S&P BSE Sensex and Nifty that lost ground in opening moves.

Among individual names, Anant Raj and Ansal Housing have rallied over 5% each, followed by Nitish Estates (up 4.3%), Ansal Properties (up 4.2%), Indiabulls Real Estate (up 2.6%), HDIL (up 2.2%), Unitech (up 1.6%) and DLF (up 1.2%).

New rules of the game

The Bill sets new rules for compensation for land acquired for infrastructure projects and industry. As compensation, the new bill provides for up to four times the market value of land acquired in rural areas and twice the market value in urban areas.

The Bill also provides compensation to those dependent on the land for livelihood; where acquired land is sold to a third party for a higher price, 40% of the appreciated land value (or profit) will be shared with the original owners. This would be exempt from tax and stamp duty.

Besides, developers will now have to get the consent of up to 80% of people whose land is acquired for private projects. For public-private partnerships, the approval limit has been set at 70%.

Impact

While the new rules are seen as a populist measure at a time when the country is heading into an election year, the industry has been left fuming.

“Cost of Land Acquisition is likely to increase by 3-3.5 times, making industrial projects unviable and raising costs in the overall Indian economy,” said S Gopalakrishnan, president, CII.

"For developers, the cost of land is going to increase significantly, impacting their project costs and therefore margins. Land valuations are already high and by further increasing them, land acquisition becomes even more difficult. Anyone without an existing land bank will now be looking at vastly increased entry costs," said Mayank Saksena, Managing Director - Land Services, Jones Lang LaSalle India.

“The Bill is expected to make key factor of production for manufacturing scarce and expensive. This certainly doesn't augur well for India's manufacturing sector. With passage of Bill, cost of land is not only go up significantly, even the process of acquiring land will get stretched by four – five years,” pointed out Dr. A. Didar Singh, Secretary General, FICCI.

Whilst within the listed space most of the real estate developers have land parcels for next 15-20 years of developments. The passage of this bill will largely impact housing segment where sensitivity of land acquisition cost wrecks havoc on project viability, analysts say. However, under current scenario of tightened liquidity, developers are going slow on new land acquisitions.

“Puravankara Projects currently undertakes affordable housing projects (under ‘Provident Housing’) at average land acquisition cost of Rs200/sqft and sells these apartments at Rs2000/sqft a 100% increase in land cost (urban area – 2x market price) would constitute about 10% of sales or a 1000bps drop in EBIDTA margins or 10% impact on project valuation of affordable housing subsidiary. Hence this will have a larger negative impact on real estate company’s valuation in case they are not able to pass on price increase to customers,” state Parikshit Kandpal and Varun Chakri, analysts at Karvy Research.

“The land acquisition cost will go up by 400% this may result in Puravankara Projects increasing its sales price by 18% to maintain current margins or increase prices by 10% to maintain current EBIDTA/sqft at the cost of margin contraction. On consolidated basis it may negatively impact margins by 1000bps on incremental new land acquisition done by the company,” they point out citing their interaction with Lalit Kumar Jain, president, CREDAI.

“Based on the competitive mapping of land bank positioning, DLF stands out as top Tier in Northern Market, HDIL in Western India and Sobha Developers in the Southern India. Oberoi, Prestige, Kolte Patil and Puravankara are mid-quartile in their respective macro-markets. LARR (Land Acquisition, Rehabilitation and Resettlement Bill) will impact these developers positively as property price increase shall augur well for profitability in case they are able to pass on,” the Karvy report says.

Industry has expressed apprehension on several points in the Land Acquisition Bill, which might be taken for discussion in Parliament on Thursday.

The apprehensions cover several aspects, from the definition of ‘project affected’ to the requirement to seek consent of at least 80 per cent of such families in acquiring land.

Industry bodies told Business Standard the new processes the Bill would add to the procedures would considerably increase the time taken to acquire land. The Federation of Indian Chambers of Commerce and Industry (FICCI) says at least five years would be required now to get land to start a project. The Confederation of Indian Industry (CII) says the Bill would raise the cost of acquisition five-fold. Both have opposed the provision to apply the provisions with retrospective effect.

The high floor for consent of those affected is one of the points opposed by both FICCI and CII. The latest amendments, tabled in Parliament last year, stipulate that acquition for private companies as defined under ‘public purpose’ requires prior consent of at least 80 per cent of the affected families is mandatory. For public-private partnership projects, where ownership of the land continues with the government, prior consent of at least 70 per cent of the affected families is mandatory.

CII says the provision of consent should be reduced to 60 per cent of land owners, uniformly and equally applicable to all cases, irrespective of its end-use. FICCI says the definition of project affected families is too wide and it would be practically impossible to identify the genuine ones and attain their consent.

Compensation package

Cost of compensation is another complaint. If the Bill’s provisions go through, the cost of land acquisitiony is likely to increase by 3-3.5 times, severely affecting the viability of industrial projects across the board and eroding the competitiveness of the manufacturing sector, says business. CII says no solatium should be imposed over and above the multiplier formula. If at all solatium is to be retained, it should be reduced to 30 per cent and the multiplier be reduced to 1.5 times instead of twice.

Another grouse is that the Bill would raise relief and rehabilitation (R&R) costs three-fold, as the proposed package treats/compensates different categories of affected families at par. Also, the most recent amendments provide that in cases where land is acquired for urbanisation, 20 per cent of the developed portion is to be reserved and made available to project affected families, in proportion to the area of their land acquired and at a price equal to the cost of acquisition and the cost of development.

CII says: “Instead of using the broad term of ‘affected families’, the category of families needs to be clearly defined and according to their losses, a suitable compensation package should be laid down.”

In the proposed amendments, the limits for direct purchase may be notified by the appropriate government, considering the relevant state-specific factors and circumstances.

Further, it stipulates filing an application with the district collector, notifying him of intent, purpose and particulars of the land to be purchased.

CII says: “As sellers would have received the premium on land value, provisions of R&R should not be applicable to land owners in such cases. However, suitable R&R entitlements could be laid down for affected families who lose their livelihood as a result of such acquisition.

Further, the provision that provides for filing an application with the district collector, notifying him of such land purchase can make the entire project unviable, as:

(1) In the time period taken for such approval, land prices will shoot up

(2) Whenever a private person/company commences purchasing land, prices tend to increase substantially

(3) Even if agreements are entered into for purchase of land, such agreements shall not carry any validity.

Hence, it says, this provision should be removed from the Bill.

Irrigated multicrop land

The limits on acquisition of multi-cropped land may be notified by the appropriate government, considering the relevant state-specific factors and circumstances, says the Bill.

CII says: “Restrictions on acquisition of multi-cropped land should not be applicable in the case of mineral extraction projects, as minerals occur naturally and, hence, their locations cannot be chosen.”

Return of unutilised land

In the proposed amendments, when any land acquired under the new Act remains unutilised for five years from the date of taking over the possession, it same shall be returned to the original owner or owners or their legal heirs to the land bank of the appropriate government by reversion, in a manner determined by the appropriate government.

CII says: “Industry must submit a land-use plan and the provision of return of unutilised land should be aligned to it, to be decided by a committee under the chairmanship of the chief secretary of the state concerned, on a case to case basis.

Retrospective applicability

The Bill stipulates that in cases where an award under Section 11 (of the old law) has not been made, the process would lapse upon enactment of the new Bill and the process of acquisition would have to start afresh.

CII and FICCI both say the retrospective clause will only add to uncertainty. The Bill should have only prospective application. Also, in cases where the notification under section 11 has already been issued and the process of award has commenced, these should be continued as stipuleted in the old law, to avoid lengthy delays in land acquisition and consequent cost over-run.

Urgency clause

The Bill stipulates that in cases of urgency, whenever the appropriate government so directs, “the collector…. shall take possession of any land needed for a public purpose and such land shall vest absolutely in the government, free from all encumbrances”.

CII says: “This clause should also be applicable in the case where after the award has been made, people do not come forward to accept it. Adverse possession should be taken over and encumbrance-free land be handed over to the requiring body.”

Public hearings

Social Impact Analysis (SIA) proceedings need to be carried out in consultation with the panchayat, municipality or municipal corporation concerned, at village or ward level.

CII says: “Public Hearings for SIA and environment vlearances should be combined. It would help reduce the overall project implementation schedule. Further, such SIA study be carried out as a parallel activity to acquisition and not as a condition precedent. Otherwise, the whole process will take a very long time and the purpose of acquisition shall be defeated, as project costs will shoot up.”

Possession of acquired land

The Bill stipulates that the distrcit collector should take possession of acquired land only after the entire compensation and R&R entitlements are disbursed.

CII says as in the existing Land Acquisition Act of 1894, the collector should be empowered to take possession after 80 per cent of the affected families have accepted and received the compensation.

Lease option

FICCI says: “Leasing has its own set of disadvantages. Leases have inherent uncertainty regarding renewals, particularly when the period is short. A lease may restrict flexibility over development and operations, adding further to uncertainties. Also, leased lands will impact mergers and acquisitions, as there are obvious limitations to the automatic transmission of leases in rearrangements. All this needs to be evaluated before making it a part of the Bill.”

Slowing of industry

One major concern of FICCI is that the time required to acquire any land will now increase significantly. The time required will be five to six years on an average, since a number of steps have been added to the whole process. There is now the IA, the public hearing for this, the evaluation of the SIA report by an expert group, getting 80 per cent consent and validating it in the SIA report, public hearing for R&R, etc.

R&R for private deals

For large projects in manufacturing in the private sector, the Bill says the government will not have any role in acquisition. Industry’s complaint: “So, for large steel and cement plants, land will have to be acquired by industry, which might face problems due to ‘last mile acquisition’. However, the R&R provisions will still apply to private transactions above the specified threshold land area. Application of R&R to private transactions on a willing buyer-willing seller basis defies economic logic.”

Weeks after setting up the panel for investigating violation of emission norms by General Motors, Ministry of Road Transport and Highwayas has asked state governments to determine the penalty for the auto major.

"The state governments concerned, where these productions units are, they are being asked to look at the extent of the faults and determine the penalty," Road Secretary Vijay Chibber told reporters on the sidelines of a FICCI event.

He said the penalty if any will be determined as per the Motor Vehicles Act.

"The Motor Vehicles Act provides for financial and other penalties. So let us see if the state governments concerned identify the penalty," Chibber said.

On asked whether the ministry has received complaints of some other auto companies which are not complying with the emission standards, he said, "We are not aware of any."

Road Ministry set up a panel last month to probe into the recall of 1.14 lakh units of Chevrolet Tavera by General Motors India for violation of emission norms.

The committee headed by Nitin Gokarn, CEO, National Automotive Testing and R&D Infrastructure Project (NATRiP), is likely to submit its report soon.

General Motors has dismissed several employees for violation of company policy with regard to recall of Chevrolet Tavera in India.

GM India had stopped production and sale of the Tavera BSIII on June 4 and the Tavera BSIV on July 2.

Nearly 2 lakh units of automobiles, mostly four-wheelers, have been recalled by various companies in India since industry body SIAM announced voluntary recall policy for its members last July. After GM's recall last week, the figure has now crossed over three lakh.

Having quality and experienced consultants is important for smooth implementation of infrastructure projects, a top government official said today.

"Transparency amongst the consultants is very very important. In the recent past in the North-east we have had 2-3 big projects which ran into serious issues of poor consultancy," Road Secretary Vijay Chibber said at a FICCI conference here.

These projects were awarded to the private companies Nagaland and Meghalaya state governments.

"The problems did not look apparent in the beginning but subsequently when the revised estimates came it was found that the consultant reports were very very poor," Chibber said.

On asked whether this problem exists only in the north-eastern region, he said, "In the north-east problem is a little more rampant, I won't say its only in the north-east.

"Nagaland project is at the enquiry stage, third party oversight mechanism is being put in place and for the Meghalaya project we have sanctioned the revised estimates as the missing links identified in that project were actually missing links," he added.

"The consultants and the government should work hand in hand and importance should be paid to acquisition of land," he said adding that each consultant has a profile which is in public domain and should be updated from time to time.

Planning Commission deputy chairman Montek Singh Ahluwalia has suggested introducing some form of penalty for delays in statutory clearances to infrastructure projects being executed in the public-private partnership mode.

Most projects are delayed because statutory clearances are not delivered on time. One way to handle this is to introduce penalties on behalf of the government, Ahluwalia said at a FICCI conference here on Monday.

If the project is delayed, the government will have to pay penalty. While it may be raising cost of the project, it will also create an incentive not to delay clearance. The tardy pace of clearances in India is often blamed for the low level of private sector participation in key areas, especially infrastructure, which in turn inhibits growth.

Ahulwalia said speedy clearances at the governments end is essential to attract at least 50% of the estimated $1 trillion needed to be pumped into the countrys infrastructure sector in the 12th five-year plan.

Private sector participation in infrastructure PPP projects has grown from 10% of the required investment in the 10th Plan period to 37% during the 11th Plan.

In the 12th Plan period, no less than 50% of the estimated investment would have to necessarily come from the private sector, as there are zero prospects of the government being able to finance such projects beyond 50%. If it cant be done, then we had better lower the growth projection than the average growth of 8% as stipulated in the 12th five year plan, he said.

Arvind Mayaram, secretary, department of economic affairs in the ministry of finance, who was also present at the summit, underlined the need for adequate resources to maintain the existing infrastructure, while scouting for funds for creating new assets.

Both the government and the private sector were beset with the problem of lack of institutional capacities to manage concession agreements over a 20-year period, and it is time to have a re-look at such capacities for managing and maintaining PPP projects, Mayaram said.

To help achieve this, Mayaram suggested allowing easy exit for contractors once the project is stabilised as well by enhancing the credit rating of SPV bonds while private players can look at setting up facility management firms.

The government needs to find ways of enhancing the credit rating of SPV bonds so that they can go and raise money from the market for longer duration. This is going to be cheaper and can be restructured and stretched from seven years to 20 years. It would improve the financials of the project, he said, adding that there should be easy exit for a developer and the ease for a competent facility manager to come in.

Planning Commission Deputy Chairman, Montek Singh Ahluwalia today said a target of eight per cent average annual growth rate for the 12th Plan (2012-13 to 2016-17) was not possible if the private sector did not contribute half of a trillion dollars required for infrastructure funding during the period.

“In the 12th Plan period, no less than 50 per cent of the estimated investment would have to necessarily come from the private sector, as there are zero prospects of the government being able to finance such projects. If it can’t be done, we better lower the growth projection,” Ahluwalia said at a summit organised by the Federation of Indian Chambers of Commerce and Industry here.

He said private-sector participation in infrastructure public-private partnership (PPP) projects had grown substantially, from 10 per cent of the required investment in the 10th Plan period to 37 per cent during the 11th.

In the first two years of the 12th Plan — 2012-13 and 2013-14 — India would grow by an average 5.8 per cent annually, even if the upper band of growth projections for the current financial year — 6.1-6.7 per cent — pegged by the Economic Survey is assumed to be true. Even then, it would require the economy to grow over nine per cent in the last three years of the Plan.

Ahluwalia urged the private sector to share and absorb the risks that are normally associated with model concession agreements under the PPP model and expressed regret that very little thinking had been done by the private sector on such agreements.

“On the issue of non-delivery of statutory clearances on time for PPP projects, a clear thinking has to emerge on what a concession agreement should entail,” he said.

Any penalty to be imposed on the government, would be resisted within the government, he said and added due diligence on the matter was required in the next two years.

He urged private players to figure out how ‘force majeure’ provisions in concession agreements were to be handled. It is important to clearly spell out what exactly is needed to be built in by way of force majeure in contracts. Force majeure is a clause in an agreement that frees both the parties of obligation when an event beyond the control of parties delays projects.

Most contracts contain force majeure provisions although they are not generally considered in detail by companies when they are negotiating a contract. As they are drafted to cover unusual or unexpected events they are not frequently relied upon.

Economic Affairs Secretary Arvind Mayaram emphasised the need for more regulators for different infrastructure sectors with clearly defined Terms of Reference. “Regulators have to be empowered and be independent of both the parties to a contract,” he said.

He underlined the need for adequate resources to maintain existing infrastructure, while scouting for funds for creating new assets.

Mayaram said both, the government and the private sector, were beset with the problem of lack of institutional capacities to manage concession agreements over a 20-year period. It was high time to have a re-look at such capacities for managing and maintaining PPP projects, he said.

He said once the construction of a project is over and it gets stabilised, there should be easy exit for a developer and the ease for a competent facility manager to come in.

India will not be able to achieve the targetted 8 per cent annual average economic growth in 12th Plan (2012-17) if private sector does not invest half of the envisaged $1 trillion in infrastructure during the period, Plan panel deputy chairman Montek Singh Ahluwalia said here today.

"This (8 per cent annual average economic growth rate in 12th Plan) will not happen if roughly 50 per cent (of investment target of $1 trillion) can't come from private sector," he said addressing a FICCI conference here.

"We should be clear about it that there is no prospect or zero prospect of being able to significantly increase government contribution (to invest in infrastructure) simply because resources won't be there as the demand for resources for health and education is huge," Ahluwalia explained.

According to Ahluwalia, the economy has to grow at 9 per cent in the last few years of the Plan period to achieve the 8 per cent average growth target.

"If the intention is to put the economy on to a path which is outlined in the 12th Plan (2012-17) that you would have average of 8 per cent (growth rate) in the five year period, then you have to put the economy on 9 per cent growth rate in the last couple of years," he added.

According to CSO's advance estimates, economy would grow at 5 per cent in 2012-13, the first year of the 12th Plan. The Prime Minister's Economic Advisory Council has pegged the economic growth at 6.4 per cent in the current fiscal.

Planning Commission Deputy Chairman Montek Singh Ahluwalia, on Monday, made it clear to India Inc. that the GDP (gross domestic product) growth target of 8 per cent set for the XII Plan (2012-17) period would have to be scaled down if the private sector failed to contribute half of the estimated $1 trillion investment in infrastructure development.

Inaugurating Federation of Indian Chambers of Commerce and Industry’s (FICCI’s) ‘India PPP Summit 2013’, Mr. Ahulwalia pointed out that while private sector participation in infrastructure projects in public-private partnership (PPP) mode had grown substantially from 10 per cent of the required funding during the X Plan to 37 per cent in the XI Plan, no less than 50 per cent of the estimated investment would have to necessarily come from the private sector during the XII Plan.

“This [8 per cent annual average economic growth rate in the XII Plan] will not happen if roughly 50 per cent [of investment target of $1 trillion] cannot come from private sector…We should be clear about it that there is no prospect or zero prospect of the government being able to finance such projects. If it can’t be done, then we had better lower the growth projection,” Mr. Ahluwalia said while pointing out that the possibility of a significant increase in government contribution towards investment in infrastructure simply won’t be there as the demand for resources for health and education was huge.

Mr. Ahluwalia maintained that the economy would have to grow at 9 per cent in the last few years of the Plan period to achieve the 8 per cent average growth target. “If the intention is to put the economy on to a path which is outlined in the XII Plan that you would have average of 8 per cent [growth rate] in the five-year period, then you have to put the economy on 9 per cent growth rate in the last couple of years,” he said.

The private sector, Mr. Ahluwalia said, should share and absorb the risks that were normally associated with model concession agreements under the PPP mode, and expressed his regret that very little thinking had been done by the private sector on such agreements.

In his special address, DEA (Department of Economic Affairs) Secretary Arvind Mayaram underlined the need for adequate resources to maintain the existing infrastructure even while scouting for funds for creating new assets. Both the government and the private sector, he said, were beset with the problem of lack of institutional capacities to manage concession agreements over a 20-year period, and called for an urgent re-look at such capacities for managing and maintaining PPP projects. Dr. Mayaram pointed out that after construction and stabilisation of a project, there should be easy exit for the developer and an easy entry process for a competent facility manager to come in. He also stressed the need for more regulators of different infrastructure sectors with clearly defined terms of reference.

Highlighting the need for easier exit norms for private sector developers, the finance ministry has called for setting up of facility management companies that can take over the operation and maintenance of completed projects.

"Such firms can step in from the equity side when the projects have been developed. This would help construction companies that have over stretched order books to focus on other projects," said Arvind Mayaram, secretary, department of economic affairs.

Addressing a conference organised by FICCI, Mayaram asked India Inc to help set up such firms as it would help build capacity in the private sector for infrastructure projects.

He also made a case for strong independent regulatory authorities that would aid capacity building in the government and also promote public private partnership projects in sectors like coal, road and rail.

"We do not have adequate number of independent regulators. Their terms of reference are not properly defined to meet all the challenges that the sectors are facing," he said, adding that the regulatory authorities have to be empowered to deal with the issues which are arising in their sectors.

Exuding confidence that the proposed coal regulator would be set up this year, Mayaram said that some more sectoral regulators would also be set up during the course of this year. Budget 2013-14 has proposed formation of a new regulator for road sector and in the Rail Budget there has been an announcement for tariff regulator.

Referring to the problems being faced by PPP projects, Mayaram said the government cannot bailout projects that fail due to commercial reasons. However, he added that the government should step in if the failures are on account of regulatory hurdles.

"We need to make distinctions between these two. Wherever there is commercial failure, the private sector must take the hit. Wherever there is a regulatory failure government must step in," Mayaram said.

India will not be able to achieve the targetted 8 per cent annual average economic growth in 12th Plan (2012-17) if private sector does not invest half of the envisaged $ one trillion dollar in infrastructure during the period, Plan panel Deputy Chairman Montek Singh Ahluwalia said here on Monday

“This (8 per cent annual average economic growth rate in 12th Plan) will not happen if roughly 50 per cent (of investment target of$one trillion) cannot come from private sector”, he said addressing a FICCI conference here Planning Commission has envisaged an investment of around $ one trillion in the 12th Five Plan with half of it coming from the private sector and set an average annual growth rate target of 8 per cent in the five year period.

“We should be clear about it that there is no prospect or zero prospect of being able to significantly increase government contribution (to invest in infrastructure) simply because resources won't be there as the demand for resources for health and education is huge”, Ahluwalia explained.

According to Ahluwalia, the economy has to grow at 9 per cent in the last few years of the Plan period to achieve the 8 per cent average growth target.

“If the intention is to put the economy on to a path which is outlined in the 12th Plan (2012-17) that you would have average of 8 per cent (growth rate) in the five year period, then you have to put the economy on 9 per cent growth rate in the last couple of years”, he added.

According to CSO's advance estimates, economy would grow at 5 per cent 2012-13, the first year of the 12th Plan. The Prime Minister's Economic Advisory Council has pegged the economic growth at 6.4 per cent in the current fiscal.

India will not be able to achieve the targeted 8 per cent annual average economic growth in 12th Plan (2012-17) if private sector does not invest half of the envisaged $1 trillion in infrastructure during the period, Plan panel Deputy Chairman Montek Singh Ahluwalia said here today. "This (8 per cent annual average economic growth rate in 12th Plan) will not happen if roughly 50 per cent (of investment target of $1 trillion) cannot come from private sector", he said addressing a FICCI conference here.

The Planning Commission has envisaged an investment of around $1 trillion in the 12th Five-Year Plan with half of it coming from the private sector and set an average annual growth rate target of 8 per cent in the five-year period.

"We should be clear about it that there is no prospect or zero prospect of being able to significantly increase government contribution (to invest in infrastructure) simply because resources won't be there as the demand for resources for health and education is huge", Ahluwalia explained.

According to Ahluwalia, the economy has to grow at 9 per cent in the past few years of the Plan period to achieve the 8 per cent average growth target.

"If the intention is to put the economy on to a path which is outlined in the 12th Plan (2012-17) that you would have average of 8 per cent (growth rate) in the five-year period, then you have to put the economy on 9 per cent growth rate in the last couple of years", he added.

According to CSO’s advance estimates, economy would grow at 5 per cent in 2012-13, the first year of the 12th Plan. The Prime Minister's Economic Advisory Council has pegged the economic growth at 6.4 per cent in the current fiscal.

The proposed Land Acquisition Bill is likely to affect the implementation of most of the real estate projects including housing projects. Experts and developers say that if the bill is passed in its present form, it will not only increase the cost of a project but would also prolong the time required to implement the project.

In fact, experts say that the bill, if passed, would slowdown the planned urbanization and hamper the growth of the economy.

In modern times, cities have emerged as engines of growth and the availability of land is very crucial in this development. According to FICCI, an industry association, the average time required for acquiring land for industry will be six-seven years, since there are a number of steps that have been added to the whole process of land acquisition. The provisions of the bill will be applicable in cases where land acquisition is 50 acres or more in urban areas or 100 acres or more in rural areas. Cushman and Wakefield, a global consultancy firm, says that the compensation for land acquisition after the bill is passed will at least double in urban areas and will go up by four times in rural areas. Further, the clause of mandatory consent of 80% of the landowners for private projects, and mandatory consent of 70% of the landowners for public-private-partnership projects will delay the process of land acquisition, and the projects in turn.

But the worst is the provision for leasing out the land to industry by landowners.FICCI said that the provision should have been discussed with the industry before being included in the bill.But neither the standing committee nor the government had earlier suggested the lease as an option under the bill.

FICCI says that on the one hand a lease may significantly reduce the front-end outlays, as the total compensation will not have to be paid up front, while on the other hand it has got uncertainty factor attached to it. It said leases have inherent uncertainty regarding renewals, particularly when the period is short. A lease may restrict flexibility over development and operations, adding further to the uncertainties. Also, leased lands will impact mergers and acquisitions, as there are obvious limitations to the automatic transmission of leases in rearrangements. The bill continues to prescribe for consent of 80% of affected families for acquisition for private-sector projects and 70% for PPP for the defined public purpose. FICCI said that affected families, and not the landowners, have been made the basis of consent requirement in any acquisition. The definition of affected family includes agricultural labourers, tenants including any form of tenancy or holding of usufruct right, share-croppers or artisans who may be working in the affected area for three years prior to the acquisition, whose primary source of livelihood stands affected by the acquisition of land.

This definition of project-affected families is too wide and it would be practically impossible to identify the genuine families affected and obtain their consent.

The bill not only wants the industry to pay for compensation for land to landowners but also for the relief and rehabilitation (R&R) of the affected families.Compensation and R&R,as per the bill,will raise the cost of acquisition by six to seven times for the industry,FICCI said in a paper.

Further,in case land remains unutilized after acquisition,the new bill empowers the government to return the land either to the owner or to the state land bank.The period for the return of unutilized land has been reduced to five years in the bill,from the earlier stipulation of 10 years.

Now,in case of infrastructure projects like industrial corridors,the project does not take off before five years because of problems in clearances.So,the definition of unutilized needs greater clarity;also,five years could be too small a time period for many infrastructural projects,depending upon the definition adopted for unutilised land.

Further,where acquired land is sold to a third party for a higher price within 10 years of the acquisition,40% of the appreciated land value (or profit) will have be shared with the original owners.This comes at the top of the already increased R&R and compensation amount to be paid and will create problems in tracing the original landowners after some years.

In these circumstances,Cushman and Wakefield says,besides housing projects,urban infrastructural projects are the ones that will receive the sharpest blow.In many instances,this rise in input costs is likely to make many projects unviable.

The growth of Indian economy is largely dependent on infrastructural development,which the government cannot take up singlehandedly;cooperation of the private sector becomes inevitable.But,the consent clause in the bill will delay the start of projects and impinge on their viability,C&W says.

Om Chaudhry,the founder a n d CEO of FIRE Capital,says that land acquisition is the most critical factor in real estate development and any dislocation here would create a lot of downstream issues in urban development and hence the countrys economic growth.

The state has gradually reduced its involvement in real estate development over the years and the private sector has acquired lands on market terms and carried out the necessary development to expand our urban city infrastructure in order to cater to the needs of the fast expanding urban population.The government should suggest a practical and feasible rehabilitation and resettlement policy, Chaudhry says.

Harsh Trehan,the CMD of Trehan Home Developers,says: Homebuyers will be the most affected party (if this bill is passed) as the developers will have no option but to transfer the entire cost increase upon them.It will be a big setback for the housing sector,especially low-income housing where the shortage is maximum.It may also jeopardize the slum rehabilitation and resettlement schemes.

In a rare display of political cooperation the UPA and opposition parties have reached a broad consensus on the much-delayed Land Acquisition Bill. The government has addressed key concerns of the BJP and other parties though a CPM spokesman said his party would oppose the Bill. With most parties on board, the Bill is expected to be passed in the second half of the Budget session of Parliament starting next week. The existing law enables the government to forcibly take over private land for a loosely defined “public purpose”. In some states the government acquired land on the pretext of “public purpose” by paying a small amount of compensation but handed it over to builders and industrialists, resulting in protests by farmers.

Differences over the Bill had delayed the acquisition of land for highways, industrial projects and special economic zones (SEZs), escalating cost and affecting growth and employment. The CPM and the Trinamool Congress demand for consent of 100 per cent landowners has not been accepted. Private projects will need the consent of 80 per cent owners and projects under private-public partnership will make do with 70 per cent. In villages compensation will be four times the market value of land and in cities it will be twice apart from a provision for homes and jobs for displaced people. Under the terms agreed on, tenants will also be entitled to compensation. The land acquisition conditions will apply to SEZs as well but can be waived for railway, highway and atomic energy projects.

The industry is not happy with the Bill. A FICCI spokesman feels “it will affect our competitiveness”. The government is keen to push the land Bill along with the Food Security Bill before the Lok Sabha elections. It should make similar efforts to bridge the divide over the goods and services tax (GST), which can simplify tax structure, boost government revenue and accelerate growth. The usually obstructionist BJP should remember that if it comes to power at the Centre tomorrow, it too would be stuck in “policy paralysis” in the absence of cooperation from the Congress.

The government on Thursday claimed it had reached a broad consensus over the Land Acquisition Bill after it agreed to two major demands of the opposition parties, clearing the way for its passage in Parliament.

The changes include a clause which would allow states to ‘lease’ rather than acquire land from farmers and provision to compensate those who had sold land after September 5, 2011, when bill was first introduced.

“We have reached a broad consensus on the Land Acquisition Bill,” Parliamentary Affairs minister Kamal Nath and the leader of opposition in Lok Sabha Sushma Swaraj said after a 90-minute all-party meeting.

This was the second all-party meeting to build a consensus after the first one on April 9 proved to be inconclusive. “All parties have agreed that the bill should soon be passed,” the minister for rural development Jairam Ramesh said after the meeting.

The budget session of Parliament will resume on April 22.

However, the industry body FICCI expressed disappointment over the proposed bill, saying that some of its clauses would pull the already slow economic growth down by elongating the process of land acquisition.

“The Bill in its present form would have serious implications as it will impact our competitiveness. It would now take from three to five years on an average to acquire land. Moreover, we understand that the Bill still provides for consent from 80% of the affected families which will delay the process and also act as a deterrent for the industry,” A Didar Singh, secretary general of FICCI, said in a statement.

The Land Acquisition, Rehabilitation and Resettlement Bill, which will replace the Land Acquisition Act 1894, seeks to facilitate the acquisition of land for industrial, infrastructure and housing use while ensuring a fair compensation for landowners who lose their lands in the process. The changes will be accommodated in the bill that is pending in the Lok Sabha through amendments.

“We had presented a list of 12 demands and we have been assured that our concerns will be addressed, subject to which we support this bill,” a BJP spokesperson said. One of the chief concerns of the party relates to the acquisition of large tracts of land by land mafia on speculating of windfall gains after the passage of the land acquisition bill.

In the new formula, the government would divide the compensation equally between the original owners and recent acquirers.

Speaking to ET, the minister of rural development, Jairam Ramesh, confirmed that there had been a spurt in land acquisition in certain states in recent times. “In UP, West Bengal, Maharastra and Andhra there has been a significant rise in land deals,” he said. However, the Left parties and DMK still have reservations over the bill with the CPI-M demanding consent of all the families affected due to acquisition.

The government may be close to pulling off one of India’s most significant policy changes with a near consensus among political parties on a new land acquisition law, taking the country to the verge of removing what’s perceived as the biggest impediment to the next wave of industrialization.

At the conclusion of an all-party meeting convened by the Congress-led United Progressive Alliance (UPA), Sushma Swaraj, leader of the opposition in the Lok Sabha and a senior leader of the Bharatiya Janata Party (BJP), said her party would back the Right to Fair Compensation, Resettlement, Rehabilitation and Transparency in Land Acquisition Bill, 2011, in Parliament.

The existing legislation, over 100 years old, has made it difficult for the acquisition of land to set up new projects. The new law seeks to strike a balance by providing fair compensation for the land acquired from farmers for industrial projects.

The new law, a key reform initiative, is expected to be passed in the budget session resuming on 22 April. Together with the proposed legislation on food security, it could potentially help the Congress party retrieve some of its prestige among voters as well as investors.

Among the controversial provisions on which the political parties, which met for the second time this month to iron out their differences, have reached consensus are an enabling provision for states to enact laws on the leasing of land, ensuring the right to fair compensation for owners and tenants as well as transparency in acquisition.

The Left parties, which insisted on 100% consent from landowners as well as those affected, were unhappy and said they would push for amendments when the UPA moves the revised Bill for approval.

Indian industry was not enthused by the plan.

“This Bill, as per our understanding, will further elongate the process of land acquisition for industry. It would take from three to five years on an average to acquire land. Moreover, we understand that the Bill still provides for consent from 80% of the affected families, which will delay the process and also act as a deterrent for the industry,” A. Didar Singh, secretary general of the Federation of Indian Chambers of Commerce and Industry, said in a statement.

Similarly, the Confederation of Indian Industry lobby group said in a release that “agglomerating land from numerous owners is not a task which the corporate sector can do effectively, especially in the absence of proper land records and with small, scattered land-holdings”.

“A balanced approach to land acquisition that takes care of needs of all stakeholders and promotes industrialization and inclusive growth is the need of the hour,” it said.

The UPA government wants to make it mandatory for companies buying land to win the approval of 80% of land holders; for public-private partnership (PPP) projects, 70% of landowners need to give consent, according to the draft Bill approved by the cabinet in December.

The new Bill seeks to replace the colonial-era Land Acquisition Act, 1894, that allows the state to acquire land at cheap rates if it believes there is a larger public benefit such as the creation of jobs.

The issue had become contentious after efforts to forcibly acquire farmland for industrial projects resulted in violent protests in West Bengal and Orissa.

“ The members (of various political parties) have evolved a consensus on the Bill,” Congress leader and parliamentary affairs minister Kamal Nath said after an all-party meeting on Thursday. “Of course, there cannot be unanimity, (but) everybody has largely agreed on the need for the Bill.”

Nath also met Swaraj over the Bill and on the functioning of Parliament. “The land acquisition Bill will be moved in the Lok Sabha and the Rajya Sabha. The business advisory committee will fix the date for the tabling,” Nath said.

Political parties had last met on 9 April to resolve their differences over provisions in the proposed land acquisition Bill.

On Thursday, “all political parties said we need this Bill in this session” given that it has been in the works since 5 September 2011, said rural development minister Jairam Ramesh. “I am hopeful that if Parliament functions, we will be able to get this Bill through,” he said.

The current form of the Bill is vastly different from the 2011 version, Ramesh said, adding: “The new Bill is one that recognizes that you need to be sensitive to investor sentiment.”

One of the BJP’s suggestions that the government agreed to relates to enabling states to lease land for PPPs or private industry use. “We have agreed to an enabling provision that will enable states to use the leasing option for all projects if they so desire,” Ramesh said.

The government also agreed to another suggestion by the BJP, the Janata Dal (United) and the Shiv Sena to offer adequate compensation to original owners who have recently sold their land.

“There were worries that a lot of land has been purchased after 5 September 2011, (when the Bill was first tabled in Parliament) for the purposes of speculation,” Ramesh said. “They feel that this land has been purchased in anticipation of this Bill being passed, so that guys who purchase it end up getting full benefits of compensation (and) the landowner or the farmer does not get anything.”

The Centre agreed to introduce a provision in the law to ensure that the extra compensation given under it is shared with the original landowner if a state government acquired land that had been purchased after 5 September 2011, he said.

“The principle has been agreed to,” the minister said, adding that it would be decided later if the compensation for farmers should be 40% or 50%. “We will work out the exact formulation and show it to Mr (Arun) Jaitley (leader of the opposition in the Rajya Sabha),” the minister said.

The BJP did not renew its earlier demand that the Bill be referred to the standing committee, said D. Raja, a leader of the Communist Party of India, who attended the meeting.

The government also agreed to incorporate some suggestions made by the Communist Party of India (Marxist), or CPM, Ramesh said.

“There are powers that are given to the government to amend the schedules (sections that refer to compensation and resettlement and rehabilitation). They (CPM) don’t want that power to be misused to dilute the compensation and rehabilitation package. So we have agreed that we will put in a proviso that the power to amend the schedule is in such a manner that the existing resettlement and rehabilitation and compensation do not get diluted,” the minister said.

The other suggestion was to compensate tenants of landowners whose land had been acquired. Previously, tenants—who tilled land belonging to owners—were eligible only for rehabilitation packages and not compensation. The government has now agreed to give compensation to the tenants as well.

“Land use should be socially desirable, scientific and pro-people,” said Raja. “At a time the government is talking about food security, permitting agricultural land for other purposes in the name of public purposes and public-private participation is not advisable.”

The government, however, rejected suggestions from the Left that the permission of 100% of the landowners in an area should be taken before their land is acquired, Ramesh said. The West Bengal government is at liberty to bring in a law of its own seeking the permission of 100% landowners for the purchase of land, he said.

The National Highways Authority of India (NHAI) feels that the government’s target to build roads at 20 km a day are unsustainable and cannot be achieved because of too may government agencies getting involved.

The chairman o f NHAI R P Singh said that the finance ministry and Planning Commission were getting involved with the nitty gritty of project implementation. “It is a case of too many cooks spoiling the broth. The Planning Commission and the Department of Economic Affairs should lay down policy guidelines only,” Singh said at a FICCI conference on Thursday.

Singh added: “Buildings roads at 20 km a day is unsustainable and cannot be achieved, as the market does not have the capacity. To build 10,000 km, one requires an investment of at least Rs 90,000 crore and around 30 per cent of this money should come in the form of equity from companies, which is difficult.”

Taking a tough stand, the Union government on Thursday said GMR Infra and GVK Power and Infrastructure Limited, which had served notices on the National Highways Authority of India (NHAI) stating that they were withdrawing from two major highway projects owing to delays in environment clearances, suffered from inherent financial weaknesses.

The government maintained that the construction of 20 km a day and the awarding of 9000 km of contracts annually were unsustainable and the performance of the sector was likely to be poor.

“The notices of GMR Infra and GVK Power and Infrastructure Limited are untenable and their claims for terminating their contracts are incorrect. They can’t renegade from the contracts,” was the firm message that NHAI chairman R.P. Singh sought to convey to industry leaders at a seminar organised by FICCI here on Thursday.

The real problem with the two companies was that they had leveraged their balance sheets a bit too far and were unable to raise equity which was proving to be a stumbling block in getting a financial closure for the two respective projects, Mr. Singh said.

While GMR was expected to raise an equity of Rs. 2000 crore, GVK needed to pool in Rs. 1500 crore for constructing a Rs. 5387 crore 555-km Kishangarh-Udaipur-Ahmedabad Expressway and a Rs. 3200 crore 373-km Shivpuri-Dewas Expressway in Madhya Pradesh respectively, he said.

GVK Power signed the contract in August, 2012 and served the notice to terminate the contract within five months — on January 14, while GMR signed its contract in September 2011 and served just a 15-day notice on December 15.

Hoping they would continue with the contractor, Mr. Singh said the NHAI was willing to consider adjustments within the ambit of the contracts.

He evaded questions relating to slapping of penalties, saying it was not appropriate to talk in these terms right now.

Incidentally, both the companies have obtained stay orders to prevent the NHAI from confiscating their security deposits.

Mr. Singh said the GMR notice was unlawful, as the 15-day notice it had served was against the grain of the contract that said a termination notice could be served with a 90-day cure period. Their concern about toll and delay in environment clearance was addressed.

As regards GVK, Mr. Singh said their contention that the law had changed in the wake of a Supreme Court ruling that permission of the Ministry of Environment and Forests was mandatory for even mining a small patch of five acres was untenable as it could allow any contract to be abandoned.

At the macro level, he held the present economic scenario, drop in traffic and escalation in the cost of construction arising from delay in their execution as responsible for the crisis.

Against this backdrop, the NHAI chairman ruled out meeting the current financial year’s targets; be it on the construction front or awarding of contracts. He was only hopeful of constructing 2500 km of highways, against the target of 3000 km, and so far contracts for only 1000 km of roads had been awarded.

The UPA government’s ambitious target to build 20 km of road a day will not fructify as the target is unsustainable, the head of National Highways Authority of India, the country’s apex road building agency said Thursday.

“Building 20 km (of roads) a day target is not sustainable. There is no point in rushing up with projects where we do not have environment clearance; we do not have land acquisitions... We must deal with these projects in a way the private equity gets interested,” NHAI chairman RP Singh said on the sidelines of a FICCI conference on highways.

Singh said the target is not sustainable on account of several reasons like delay in environment clearance and issues of land acquisition.

The NHAI chief’s remarks come at a time when award of highway project during 2012-13 has hit rock bottom. The agency has so far managed to award a little over 800 km stretch as against the original target of 9,500 km. Poor response has now forced the government to scale down the target to 6,600 km. Developers have cited a host of reasons like lack of funds and unwillingness of banks to lend for not coming forward to bid for projects.

Kamal Nath, the then road minister, had in 2009 announced its ambitious target of building 35,000 km of highways in five years, which translates into constructing 20 km of roads in a day. So far, the target was never achieved and even Prime Minister Manmohan Singh had expressed concern over it.

Raising equity was a major concern for awarding road projects of 10,000 kms a year, including 7,000 km of national highways. It requires Rs. 90,000 crore investment, of which one-third ( Rs. 30,000 crore) should be private equity. “Can we really raise Rs. 30,000 crore equity,” he wondered while stressing the need for making road projects lucrative.

Achieving up to 60% of the target would be meaningful if the government manages to maintain current rate, he said.

National Highways Authority of India Chairman R.P. Singh has said that the basic reason why GMR and GVK are withdrawing from two highway projects is because the projects have become unviable due to high cost and lower toll revenue estimates.

He said this at a FICCI conference today.

Saying that this is his personal opinion, Singh said concessionaires have earlier put up with environmental delays.

The proposals introduced in the latest avatar of the draft Land Acquisition Rehabilitation & Resettlement (LARR) Bill, if accepted, will jeopardise industrial growth in northern India. The suggestion that irrigated multi-cropped land can be acquired only under "exceptional" circumstances will deprive the entire Indo-Gangetic belt — Punjab, Haryana, UP and Bihar — of industrial activities. "If this suggestion is accepted, there cannot be any industrial activities in the northern states as a major part of their land is agricultural land," FICCI chairman R.V. Kanoria told The Sunday Guardian. 84% of Punjab's land is agricultural in natural; in the case of Haryana and UP it is 80% each, while it is 70% in Bihar. Other states such as Maharashtra (68%), Gujarat (63%), Tamil Nadu (62%) and Karnataka (67%) are unlikely to be much impacted as they have already seen decent industrial progress.

A Group of Ministers (GoM) headed by Agriculture Minister Sharad Pawar recently cleared the draft Bill. The draft will be placed before the Cabinet soon, following which it is likely to be tabled in Parliament in the winter session.

Kanoria has written to Pawar, citing FICCI's concerns about the proposals. He has suggested that the government should denote a particular area for industrial projects. "Land use changes should be notified much in advance before the acquisition. This will make the acquisition or direct purchase of land smooth, because everybody will know that the area in question is for industrial activities," he said.

In fact industry bodies have opposed the draft proposals saying they have not taken care of their concerns.

The Confederation of Indian Industries has said it is "very concerned" about the proposed increase in costs towards both land acquisition and R&R (rehabilitation and resettlement) entitlements proposed in the Bill. The cost of land acquisition in the country is likely to increase by 3-3.5 times, severely affecting the viability of industrial projects across the board. This may erode competitiveness of the Indian manufacturing sector, said a CII official.

According to Kanoria, "Some of our major concerns have not been addressed. The draft proposal says R&R would be applicable even if industry purchases land on market price." "When a plot of land is bought directly from the landowner at market price, he is a willing seller. The industry is paying him the negotiated purchase price. R&R should come into force only if the land is acquired. Moreover, there should be provisions for faster transfer of ownership rights. Stretching it for too long affects the project," he added.

The Bill rules out the possibility of land acquisition for the private sector, except in cases of "public purpose". The letter says: "In a country like India, State must have a facilitating role in land acquisition for industry where large pieces of land are required. In cases, where 75% of land has been purchased (directly), the Bill could provide for acquisition of the remaining 25% for the private sector."

Another industry body Assocham has demanded a provision of government support for acquiring 100% land requirement by the private sector for a project if has already acquired two-thirds. It has said that the suggested provision should be applicable even to the projects which are defined as other than public.

The Federation of Indian Chamber of Commerce & Industry (FICCI), on Wednesday, said it was not happy with the existing land policy in Bengal which negates the state’s role in procuring land for private industry.

FICCI president RV Kanoria said the state government should focus on boosting agricultural productivity than preserving agriculture land.

“Dependence on agriculture must be reduced for the overall development of the economy. By blocking land acquisition for industry, the state is not doing justice to agriculture. For industrial development, land acquisition is a must,” he said.

Naina Lal Kidwai, FICCI’s president-elect, hinted that the credit deposit ratio in Bengal cannot improve without big ticket investments since industrial health determines growth.

FICCI bosses, however, praised CM Mamata Banerjee for bringing about a ‘sea change’ in the work culture and law & order. “The chief minister has a positive attitude and wants to attract investments,” said Kanoria.

Mamata claimed that the total number of man-days lost has come down to a mere 5,200 from the staggering 65 lakh in 2010-11.

Kanoria said FICCI would like to partner the state government in various sectors including textile, tourism and entertainment.

“Bengal has cheap labour. Technology is also available here. We will help the state develop its industry. We are very much interested in tourism and entertainment sector. The state has some wonderful beaches and most of them are yet to be explored,” Kanoria added.

More than two months after the Airport Metro Express line was shut down by the concessionaire citing safety concerns, union Urban development minister Kamal Nath Monday said repair work on the premier line is expected to end in October.

He was responding to reporters who asked him about the status of the Airport Metro, the country's first public-private partnership Metro project, which suspended its services on July 8 after structural faults were detected.

"We are expecting the repair work on the Airport Metro Express Line to be completed by the end of October," he said.

The Minister was speaking to reporters on the sidelines of a FICCI conference on "Urban Infrastructure - PPP for Better Public Service".

Nath also said, "Monorail is 40 percent cheaper than metro and it can do much sharper curves. It can go up and down, which the metro cannot. The monorail corridor would provide intra-city transport service in congested localities, where the metro and even buses may find plying difficult," he said.

Union urban development minister Kamal Nath on Monday said that the repair work on Airport Metro Express line would be completed by next month, indicating that the service is likely to resume soon.

Service on the premier Metro line - executed on the public-private-partnership (PPP) mode - was suspended on July 8 after structural faults were detected on this stretch. Nath was speaking to reporters on the sidelines of a FICCI summit on PPP model for urban development. Sources said that the UD ministry is holding regular meetings to assess the repair work's progress, which has been underway for the past few weeks. "Services will resume after all safety issues are addressed," a ministry official said.

Earlier, Nath reiterated the need to push mono rails for both big cities like Delhi and smaller ones like Kochi, claiming this system of public transport is around 40% cheaper than Metro. He added that the Centre would provide financial aid to cities to take up such projects on PPP mode to make them financially viable."Monorails will provide an efficient transport system and will also act as a feeder system to the Metro. All cities must have monorail. The government will support the initiative," Nath said.

You won't be able to ride the Airport Express Metro anytime soon.

On a day urban development minister Kamal Nath said repairs on the line would drag till October- end, sources said services on the line are likely to resume only in November.

'We are expecting the repairs to be completed by October-end,' Nath told reporters on the sidelines of a conference here on Monday. The minister was speaking at a FICCI conference.

After the Delhi Airport Metro Express Pvt. Ltd. suspended services on the high-speed line on July 8 this year citing safety issues and handed it over to the Delhi Metro Rail Corporation for repairs, urban development secretary Sudhir Krishna had said the flaws would be fixed by August-end.

The deadline to complete the repairs was then shifted to September 20, then again to September 30. And Nath's statement on Monday makes it clear the technical problems on the line are far more serious than earlier thought.

The Airport Metro line has been constructed by the DMRC and train services on the line operated by the Delhi Airport Metro Express Pvt. Ltd., a Reliance Infrastructure subsidiary.

The 7km stretch of the line between Buddha Jayanti Park and Mahipalpur is full of faulty bearings, while parts of the underground stretch also need grouting because of seepage of water. Bearings are the shock absorbers between the concrete platforms on which the trains move and the pillars.

Out of 2,100-odd bearings on the elevated section of the corridor, nearly 230 need repairs.

The Airport Express line was designed for a top speed of 120kmph but trains never exceeded a top speed of 105kmph on the line.

In an attempt to overcome the urban infrastructure deficit, the government is encouraging development of workable Public-Private Partnership (PPP) models, urban development minister Kamal Nath said on Monday.

'The governments want to encourage the right PPP model as the urban infrastructure is the biggest challenge we face. We need workable and several types of PPP models,' Kamal Nath said. Inaugurating a conference organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) on 'Urban Infrastructure - PPP for Better Public Service', the minister stated that the challenges of urbanisation in India is huge and unprecedented in scale.

'The government is pushing for PPP to bridge the infrastructure deficit. As the country is urbanising rapidly, the infrastructure gap would widen if timely steps were not taken,' he said.

Kamal Nath also said the population has increased from 285 million in large urban areas in 2001 to 400 million in 2011 .

The minister also said there was tremendous scope of adopting the PPP model in infrastructure projects in India. 'There are huge opportunities for partnering in infrastructure projects like solid waste management, water waste recycling,' Kamal Nath said.

Expressing concern over high rehabilitation and resettlement (R&R) cost to be incurred by industry in the proposed Land Acquisition Bill, FICCI today asked the government to make changes in the provision.

Without such changes it will not be viable for the industry to acquire or purchase land for manufacturing or infrastructure, the industry body said.

"The current R&R provisions of the Bill will put an unfavourable burden on the industry as it will escalate the land cost at least by three to four times if compared with the existing provisions of Land Acquisition Act 1894," FICCI President R V Kanoria said in a statement.

FICCI hoped that the proposed Bill in its current form is not passed as the chamber thinks it would not be in the interest of overall economic development of the country, the statement said.

Kanoria further said the definition of 'public purpose' needs to include industry/manufacturing, industrial zones like National Manufacturing and Investment Zones (NMIZs) and industrial corridors.

By excluding industry and manufacturing from the definition, the objectives of National Manufacturing Policy cannot be achieved, he added.

In a densely populated country like India, the government must necessarily have a facilitating role in land acquisition for the industry, FICCI said.

Expressing concern over high rehabilitation and resettlement (R&R) cost to be incurred by industry in the proposed land acquisition Bill, FICCI today asked the government to make changes in the provision.

Without such changes it will not be viable for the industry to acquire or purchase land for manufacturing or infrastructure, the industry body said.

"The current R&R provisions of the Bill will put an unfavourable burden on the industry as it will escalate the land cost at least by three to four times if compared with the existing provisions of Land Acquisition Act 1894," FICCI President R V Kanoria said in a statement.

FICCI hoped that the proposed Bill in its current form is not passed as the chamber thinks it would not be in the interest of overall economic development of the country, the statement said.

Kanoria further said the definition of 'public purpose' needs to include industry/manufacturing, industrial zones like National Manufacturing and Investment Zones (NMIZs) and industrial corridors.

By excluding industry and manufacturing from the definition, the objectives of National Manufacturing Policy cannot be achieved, he added.

In a densely populated country like India, the government must necessarily have a facilitating role in land acquisition for the industry, FICCI said.

In a report jointly prepared by FICCI and Ernst & Young stated that as many as 158 projects in road and transport, oil and gas and power sectors were far behind the schedule of completion.

The Road Transport and Highways Minister, C P Joshi, said "We have entered an EPC (engineering, procurement and construction) mode and in that we hope to award 4,000 km, in the 12th Five-Year Plan."

The reports stated the share of passenger movement by rail has declined from 74% in the 1950s to present levels of 13% and for the same period, the share of freight movement by rail has dropped from 86% to 39%.

“In the last round of bidding, we received a premium to the tune of Rs 3,000 crore,” he said adding that this time we are hopeful of doing better. The Cabinet Committee on Infrastructure, this month, approved the Model EPC Agreement Document for construction of two-lane national highways works. “I am concerned when I hear bids are not being received or only single bid is being received in well structured projects. We have made earnest efforts to understand the reasons thereof and wish to resolve the issues,” Joshi said.

Meanwhile, the report, which is a clear comment on the performance of the government in the infrastructure sector said that the Indian Railways has only added 1,750 km of new lines, from 2006 to 2011. While China for the same period has added 4,000 km, excluding a high-speed network of around 10,000 km.

The report said there was a need for strengthening national highways, which constitute around 1.7% of the road network, but carry 40% of the total road traffic. Yet only 24% of the country’s national highways are four-lane and meet the required standards.

The National Highways Authority of India (NHAI) should reduce project sizes to between Rs 500 crore and Rs 1,500 crore in order to attract more bidders, a key industry lobby has said.

“There is a scope to attract small and medium-sized companies, something that NHAI was doing earlier,” said Hemant Kanoria, Chairman, FICCI National Infrastructure Committee, an event hosted by the industry body here on Friday.

Kanoria also raised the issue of the highways body compensating developers on stretches where competing toll-free roads were being built by State Governments.

Roads that do not charge tolls drive away users from national highways, which impact revenues of highway developers, he said.

“There are cases of the local administration stopping toll collection or even building bypasses where toll booths exist,” he added.

INFRA PROJECTS

Meanwhile, an Ernst and Young-FICCI report has stated financial and manpower constraints as the key reasons why infrastructure projects were getting delayed. Since the total number of such players was less and they had already secured several projects, it had limited their capacity to take up new projects, it added.

It said lack of skilled manpower and shortage of construction equipment was compounding the problem. It suggested that foreign players could make investments and bring in technical expertise to undertake large and complex projects.

The Road Transport and Highways Minister, C.P Joshi, said, “I am concerned when I hear bids are not being received or only single bids are being received in well-structured projects. We have made earnest efforts to understand the reasons thereof and wish to resolve the issues.”

Joshi said his Ministry was developing a system to track the progress of construction and maintenance of national highways. The system will allow all stakeholders to capture information, photos and videos directly from the site using tablets, notepads or mobile phones and its retrieval on desktops and laptops on a real-time basis. This will make monitoring of projects more prompt and responsive , he added.

Concerned over the pace of awarding projects in the highways sector, road transport minister CP Joshi has asked the industry to come forward with suggestions to revive the sector.

“I would be very happy, if you could come out with the possible reasons for the recent sudden slowdown. As partners in this sector, it is imperative that we put our heads together and resolve issues, if any, that are hindering progress,” Joshi said at an infrastructure summit organised by industry body FICCI.

Joshi also said that he is concerned about bids not being received or single bids being received even in well structured projects.

“We have made earnest efforts to understand the reasons thereof and wish to resolve the issues,” he added.

The road transport ministry, in May, had also called a meeting of the industry to discuss ways to resolve problems being faced by them in financing and implementation of highway projects.

The road transport ministry and the National Highways Authority of India (NHAI) awarded road projects covering 7,957 km, has until now failed to receive bids for 6 projects in the current fiscal. They have been able to award projects covering over 100 km till now.

Industry analysts feel that awarding of projects in smaller ticket sizes would be the key to getting in participation from the industry that is facing a financial crunch.

The dwindling capacity of non-state companies in the infrastructure sector is an emerging challenge in achieving 12th Five-Year Plan (2012-17) targets, said an Ernst and Young report.

An analysis of six leading engineering, procurement and construction (EPC) contractors showed that their working capital growth slowed to 27% in the last fiscal compared with a high of 55% in 2008. Average debt on their books rose to almost 1.5 times equity compared with 0.85 in 2007, according to the report released at the India infrastructure summit organized by the Federation of Indian Chambers of Commerce and Industry (FICCI) in New Delhi on Friday.

Roads minister C.P. Joshi expressed concern over the “recent, sudden slowdown” in bids for public-private partnership (PPP) projects in the sector.Land acquisition was cited as the biggest hurdle in the faster implementation of infrastructure projects. Almost 70% of PPP road projects see delays in financial closure due to delays in land acquisition by National Highways Authority of India (NHAI), the report said.

Likely to keep development target of 1,000 km unchanged for Twelfth Plan period

The country's ambitious expressway development plan has hit a government roadblock. After failing to evolve a concession agreement for projects in the central sector, the Centre is now likely to keep the expressway development target of 1,000 km unchanged for the 12th Plan period. This is the same target fixed in the previous Five-Year Plan.

Ironically, that proposal never took off. The National Highway Authority of India was not awarded a single kilometer for the expressway plan. The access-controlled expressway is seen as the perfect recipe for growth as it provides unhindered access between states and cities.

While state governments have taken the lead by constructing few expressways, the Centre is yet to open up to these new-age roadways.

“The central expressway programme has hit a speed-breaker. The road ministry is unlikely to add to the target kept in previous plan as the priority remains to get them off the block first,” said a Planning Commission official. The programme is yet to get a model concession agreement (MCA), the official added. “Even if work starts on it now, it would take anywhere between 15 and 18 months before the first projects could be awarded,” he said.

"The 1,000-km target could be a challenge even in the current plan," said another official of the commission.

The commission is currently finalising the 12th Plan document and is taking inputs from respective ministries to fix sectoral targets. While the new target is expected for road projects under the National Highway Development Programme (NHDP), there is no target for expressways.

Industry chambers want the Centre to put expressway construction on top priority.

A FICCI spokesperson said, “Since there has been no progress on this front, we must realise that we need to meet this target in the 12th plan period. Construction of expressways should be the top priority in the sector as it will improve transport glitches and contribute in easing infrastructural problems of the country.”

The Centre approved the construction of 1,000-kilometer expressways under phase four of its National Highways Development Project (NHDP) at a cost of R16,680 crore in October last year.

The stretches were identified before the 11th Plan. These include the 400-km-long Vadodara-Mumbai stretch, the 66-km-long Delhi-Meerut expressway, the 334-km-long Bangalore-Chennai and the 277-km-Kolkata-Dhanbad expressways. In addition, there is also a proposal to develop the National Expressway-2, which will connect National Highway-1 near Kundli and NH-2 near Palwal, both near Haryana. The ministry has also identified 23,000 km of expressways for implementation over the next few years.

The ministry of road transport and highways, in a statement, had said that construction work would be carried out through public-private partnership.

However, the plan is right now just on paper.

The ministry is also working on a proposal to establish the Expressways Authority of India on the lines of the National Highways Authority of India (NHAI). A department under NHAI is looking at development of expressways right now. The problem with expressways is compounded by the sluggish growth of highways in the country. While road authorities have to meet a construction target of 20 km of roads a day, they can only manage 8-9 km a day. The Prime Minister's Office (PMO) is now overseeing the construction work in a bid to push the highway plan.

The government seems determined to pass the perilous land bill in the monsoon session of Parliament. But, with the scope of the land bill so narrowly defined, one really questions whether it defeats the purpose of any legislation to correct the asymmetries in India’s land market which it intends to target. First, there is a proposal in the Land Acquisition, Rehabilitation and Resettlement Bill 2011 and the Parliamentary Standing Committee Report to restrict the use of agriculture land. While the bill restricts the use of multi-cropped land to only 5% in a district, the Parliamentary Standing Committee Report has suggested restrictions on the use of all agriculture land for ensuring food security. This would further increase the inter-state and intra-state imbalances, a concern expressed by some states too. Secondly, what is interesting is a comment by the Department of Land Resources (DoLR) in response to a suggestion by the National Commission on Scheduled Caste in the Parliamentary Standing Committee Report. DoLR stated, “Forest land is outside the purview of the Bill”. Thirdly, there is also another set of land that the bill intends to keep out of its purview. The land acquired under 16 central legislations listed in the bill’s fourth schedule will be out of its purview. This would leave 95% of the land acquired by the Centre out of bill’s domain, as pointed out by the Parliamentary Standing Committee.

According to the land use statistics provided by the department of agriculture (see table), agricultural land itself constitutes a significant share in many states: 84% land area in Punjab is agricultural land, 80%in Uttar Pradesh and Haryana, and 70% in Bihar. If we take forest land also, which will be governed by separate legislation (the Forests Act), then the combined area is much higher. In Uttarakhand, 94% area is under forest and agriculture. Similarly, in Punjab, 90% area will fall under agriculture and forest. Currently, on an average, the non-agriculture sector accounts for 8% of the total land area and, if the same yardstick is applied to most of the states shown in the table, it hardly leaves any land area that can be easily accessible and available for industry. This only leaves with industry large tracts of fallow land that in most cases would be unviable due to cost constraints. Worldwide we have seen that cluster development is the model that helps industry in reducing transaction costs.

Bihar’s government, in its suggestions to the Parliamentary Standing Committee on the issue of restricting the usage of agriculture land, stated that this provision will stop all land acquisition in a state like Bihar, which abounds with irrigated, multi-crop areas. Even within a given state, intra-state imbalances might ensue in the aftermath of this legislation. Even smaller states/UTs like Andaman & Nicobar have expressed concern over this provision, saying that they have very little revenue land available and most of the area in the UT is covered under forests. It will be nigh impossible to get any land defined as culturable waste in the UT.

Here, one should note that while the bill restricts the ‘acquisition’ of multi-cropped land, it does not prohibit the ‘purchase’ of such land. This means that the state will not acquire such land, except in limited circumstances. But surely any private party can purchase this land on a willing-buyer-willing-seller basis? But in the case of private transactions, the bill wants the rehabilitation and resettlement provisions to be applicable, which are not just perpetual and onerous, but administratively impossible for the private players to deliver. Effectively, we are ruling out the possibility of conversion of agriculture land for industrial development or urbanisation.

Another Achilles’ heel of the bill which the Parliamentary Standing Committee has tried to address is the provision to exclude 16 Central Acts from the purview of the bill. This list includes Central Acts like the SEZ Act 2005, the Works of Defence Act 1903, the Cantonments Act 2006 and the Railways Act 1989. It is difficult to understand why SEZ’s land acquisition should be out of the purview of this bill when all private transactions above 100 acres are covered under the rehabilitation and resettlement provisions. The SEZ Act does not have provisions for rehabilitation and resettlement, which means that for acquiring land for SEZ, separate rehabilitation and resettlement provisions would be followed from those followed for acquiring land for similar zones like the National Investment & Manufacturing Zones.

Further, it needs to be noted that, like in the case of private sector land acquisition, similar concerns have been expressed with respect to land acquisition under the Centre’s domain. With various central legislations kept out of its purview, the bill will not serve any purpose, but would deepen the malaise. For instance, the ministry of defense is the biggest landholder in the government, with a holding of 17.3 lakh acres of land. The Performance Audit of Defence Estates Management [CAG’s Report No 35 of 2010-11, Union Government (Defence Service)] found that defence land remains constantly under commercial exploitation. The report further notes, “The practice of allowing shopping complexes on defence land…continued to be unabated…Further, though golf is not an authorised activity there were 97 golf courses under the Army with an area of at least 8076.9 acres”.

The list of such concerns with the current bill is unending. While the Committee deplored the casual approach of government in the consultative process, it fails to recognise the partnership between industry and government in the economic development of this country by excluding industry and PPPs from the definition of public purpose.

The author is additional director & head-manufacturing, FICCI.

The alphabetD and F may be separated by just one letter , but while acquiring land for highways, the difference might just cost the developer time, energy and quite a lot of money.

For, while handing over land for highway development, the National Highways Authority of India’s (NHAI) responsibility ends with the issuance of a 3D notification under the NHAI Land Acquisition Act.

But developers can enter and start work only after 3F is notified by the State Government concerned.

3D is the declaration of land acquisition and, in case the owners are unwilling to part with their land, they can take the matter to the local authorities, preventing the firms from starting their work.

This explains why industry chamber FICCI’s infrastructure committee wants 100 per cent land acquisition before a road project starts. That NHAI has awarded the highest-ever project road length in fiscal 2012 makes it all the more natural for developers to demand availability of the entire land.

At present, 80 per cent land has to be acquired and made available to the developer by the time the concession agreement is signed. The agreement is usually signed within nine months of opening a bid.

Cost overrun

Delay in land availability adds to the project cost. Developers also face delays in collecting the toll if the project is not completed on time. One year of delay in construction could impact the internal rate of return by 100 basis points (one percentage point ).

In case land is not made available, NHAI has to pay some penalty. However, developers usually avoid taking the NHAI head-on as they depend on it for their business and dispute resolution.

“We have asked NHAI to make requisite changes in the contract document to ensure that 100 per cent land is made available,” said Mr Hemant Kanoria, Chairman and Managing Director, SREI Infrastructure, who also heads the infrastructure committee of the Federation of Indian Chambers of Commerce and Industry .

But Mr Kanoria played safe while commenting on the present state of land acquisition.

SREI Infra is implementing several highway projects, including one in the difficult terrain of Arunachal Pradesh.

Another problem faced by developers while acquiring land is outdated revenue maps and records.

Many a time, the title deeds are missing or have not been transferred across generations.

In the current fiscal, NHAI has a target to acquire over 12,000 hectares, against 9,800 hectares in FY12. This is against 8,577 hectares acquired in 2010-11; 6,244 hectares in 2009-10; and 3,120 hectares in 2008-09.

Before 2009-10, NHAI was acquiring about 3,000-4,000 hectares each year.

Recently, IRB Infrastructure backed out from developing a project in Goa, one-and-a-half year after signing the concession agreement, citing non-provision of land by the NHAI.

With less than a fortnight to go for the Budget, tax experts urged Finance Minister Pranab Mukherjee to bite the bullet and roll back stimulus, a suggestion which did not find favour with the India Inc.

Describing stimulus as a "short-term life support" measure, global consultancy firm KPMG executive director Vikas Vasal said, "(they) cannot continue forever. This is one area where timing may never be considered right; however, somewhere down the line the Government has to bite the bullet."

However, making a case for the continuation of stimulus, India's apex industry chamber FICCI president Harsh Pati Singhania said the economy is still not out of woods and will continue to need government support for some more time.

"We would... expect the continuation of stimulus packages for another year or at least six months till October 1. This, in our view will considerably help us in improving the economy further," he added.

Following the global financial crisis, which was triggered by the collapse of Lehman Brothers in September 2008, the government provided three stimulus packages to the industry entailing a revenue sacrifice of Rs 1.86 lakh crore.

The stimulus, which include steps like slashing taxes rates and raising public expenditure, is slated to push up fiscal deficit to 6.8 per cent of the GDP in 2009-10 from 6.2 per cent a year ago. Mukherjee will be required to take steps to contain fiscal deficit when he unveils the Budget for 2010-11 on February 26. .

While expressing concern over the rising fiscal deficit, CII director general Chandrajit Banerjee said "(Withdrawal of stimulus) It should not be done by risking economic recovery".

However, another global consulting firm Ernst and Young, Tax Market Leader Sudhir Kapadia, made a case for partial withdrawal of stimulus packages by suggesting that excise-duty rates be brought back to pre-stimulus levels. "Finance Minister may be forced to consider partial withdrawal of stimulus in the forthcoming budget...more specifically, he might consider reinstating the excise duty cuts to the pre-stimulus levels of December 2008," he added.

Mukherjee, Kapadia said, was not expected to cut spending on social sectors to reduce fiscal deficit, which is reaching unsustainable levels. Pointing out that the Indian economy is not insulated from the global economy, PHDCCI president Ashok Kajaria said there are many areas which would need attention of the Finance Minister in the upcoming Budget.

Mr Hernando de Soto, President of Institute for Liberty and Democracy, urged Indian policy-makers to formulate laws that confer property rights to urban slum dwellers. Mr de Soto was addressing a Federation of Indian Chambers of Commerce and Industry conference on inclusive growth.

He urged the policy-makers of India to carry out a diagnostic check of the people who were outside the pale of the law and ensure that the cost of compliance was smaller than the cost of being extra-legal.

“The Government needs to know the status of property rights in the country, see what the future urban development scenario would be and devise laws that are in tune with reality,” said Mr de Soto.

He said that property rights bring information and commitment together, “Property manages to catch all the information that is required to give titles to the owner in a legalistic way.”

GOOD LAWS

Mr de Soto added, “People want good laws and for that to happen, a hard look would have to be taken to find out how the poor are organised and until that happens, it would be difficult to keep at bay the inevitable waves of invasions that will keep adding to the urban slum population.” Ms Kumari Selja, Minister of Housing and Urban Poverty Alleviation and Tourism, in her address, pointed out that inclusive growth called for inclusive cities with a strategy to include the urban poor in each city, especially the slum dwellers in the formal urban planning and development processes.

“The issues of human settlement are intricately connected with the issues of equitable distribution of assets and protection of the environment for posterity and ensuring inter-generational equity,” she said.

INFORMAL ECONOMY

The FICCI President-elect, Mr Rajan Bharti Mittal, said: “We, in India, have a very large informal economy and we realise that unless we bring this segment into the mainstream, we will not be able to improve the social and physical status of millions of our people.” India, he said, could profit immensely from Mr de Soto's work on how his experience in Latin America can be replicated in a country like ours where close to 92 per cent of the workforce is engaged in the informal sector and close to 27 per cent of the people are below the poverty line.

He added that FICCI, as a follow-up measure to Mr de Soto's visit, will organise regional workshops in different parts of the country to gather more feedback and create more awareness about the benefits that can result from formalisation of the informal economy.

He acquired global fame, and the attention of world leaders, by championing the cause of private property rights as an instrument for poverty alleviation in the developing world — Bill Clinton once called him the world’s greatest living economist. Now in New Delhi to deliver a lecture to FICCI members on ‘inclusive growth through property rights’, Hernando de Soto, the 68-year-old award winning Peruvian economist, also met Prime Minister Manmohan Singh, UPA chairperson Sonia Gandhi and Planning Commission Deputy Chairman Montek Singh Ahluwalia over the weekend.

In a conversation with FE, a day before his lecture, he however revealed his newest interest — analysing what went wrong with capitalism in the West using the framework of property rights.

Taking aim at the same financial derivatives that Warren Buffet described as weapons of mass destruction, de Soto said, “The biggest problem today in the world economy is that it’s not India that has the biggest shadow economy in the world, it’s not Peru or Mexico, it’s the West. They have got the biggest economy where nobody knows where the majority of the assets (derivatives) are — that’s a shadow economy.”

“According to my calculations, there are $170 trillion of stocks and bonds in the global market, $110 trillion of physical goods and that in total the world may have $400 trillion worth of assets. But you have anything between $600 trillion and $1 quadrillion (BIS estimates) worth of derivatives. There’s too many of them.”

But when asked if he would say derivatives should be banned, de Soto said, “No. First, we don’t know the facts. We have to determine how many there are. Second, we need to find out how many types there are. There may be 70-80 idiosyncratic types. So we have to find out: where are they? Who owns them? How many types are there? The next thing you need to know is what’s their value? $600 trillion or 1 quadrillion? In the old days, you had a mechanism called mark to market. But for derivatives it was seen as unfair. So now, for a start, put out a regulation that makes it compulsory to declare this information. That which isn’t declared doesn’t count. This will take care (of compliance). After getting all the information, you can decide whether these derivatives are weapons of mass destruction as Warren Buffet and George Soros say, and whether you have to ban them; or whether some are good, some are bad; or whether it’s all okay. But right now, we don’t know.”

You wrote a famous op-ed in 2001 titled, 'Why capitalism works in the West and not elsewhere.' Have you changed your mind after the financial crisis?

No. Because what I said is that the recordation of assets submitted to the rule of law is what gave capitalism its strength, whether we liked it or not. The recession that you now have is because a majority of the assets in the financial world of the West today, which are called derivatives securities, are not recorded as property.

Roll back to October 2008. Secretary Paulson of the US comes in and says that he's going to establish a programme to fight the recession that's coming. Since the problem is with troubled assets, he wants $780 billion from the US Congress, so that all of these can be taken out and put into a bad bank. Two weeks later he comes out and says that he has decided not to use the $780 billion to help the banks clear these assets. And that he's going to use the money in a different way. He said he was going to use it to create a stimulus programme, and give money to the biggest banks so that there is no run on the banks even if they hold toxic assets.

At that moment, I went to US. Incredibly, nobody, including journalists, was looking at why they changed programmes. But I decided that I was going to look at it. That's what I am writing a book on. I know Greenspan and other senior officials. And I asked them, why did Paulson change his plan? And the reply was that Paulson wasn't able to find the toxic assets. So I spent 7 months in the US researching and found out that these derivatives are the only unrecorded property asset in the world.

I still believe that the centre of capitalism is recorded assets as property. The problem of the recession is not a failure of the system but rather that the system was not followed.

So, what's your prescription for financial regulation: recording these assets?

Absolutely, they have to be recorded. But when you record them, and it becomes clear that there are $600 trillion of them, let me tell you what happens. The first thing that you start finding out is which banks have got them. So you start getting rid of the banks that don't know how to make business. And the people who will pay for the recession will be the ones who made the bad investments. You protect the savers and protect the savings, but the market turns around.

But I think that you can't have the cure until you get the facts. And the biggest problem today in the world economy is that it's not India that has the biggest shadow economy in the world, it's not

Peru or Mexico, it's the West. They have got the biggest economy where nobody knows where the majority of the assets are—that's a shadow economy.

According to my calculations, there are $170 trillion of stocks and bonds in the global market, $110 trillion of physical goods and that in total the world may have $400 trillion worth of assets. But you have anything between $600 trillion and $1 quadrillion (BIS estimates) worth of derivatives. There's too many of them.

And when you don't know where the assets are, that's how you get Dharavi. What's the problem in Dharavi? You walk in there and say who owns what. I've just been there. Nobody tells you. You ask, do you get credit? They say no. They are in a permanent credit crunch. Why? Because if you give a loan to somebody, you don't really know who's going to pay and who's not. That's a shadow economy. Now the biggest shadow economy is in the West. It's in the hands of the big banks and it's not following the rule of property, which requires identification of the owners of the assets.

Would you then go as far as saying that derivatives should be banned?

No. Let me tell you why. First, we don't know the facts. We have to determine how many there are. Second, we need to find out how many types there are. There may be 70-80 idiosyncratic types. So we have to find out: where are they? Who owns them? How many types are there? The next thing you need to know is

what's their value? $600 trillion or 1 quadrillion? In the old days, you had a mechanism called mark to market. But for derivatives it was seen as unfair.

So now, for a start, put out a regulation that makes it compulsory to declare this information. That which isn't declared doesn't count. This will take care (of compliance).

After getting all the information, you can decide whether these derivatives are weapons of mass destruction as Warren Buffet and George Soros say, and whether you have to ban them; or whether some are good, some are bad; or whether it's all okay. But right now, we don't know.

How do you explain the remarkable rise of China despite its weak property rights?

Now, 300-400 million people in China have property rights that they didn't have before. That's on the east coast. And that's the part of China that's growing. The part of China that has got about 900 million people that don't have property rights is the part that's still poor. Property rights ensure that you know who is responsible and accountable for what. Without knowing India, I can tell you it's the same thing here.

Land acquisition is a big problem in India. Do you think the State should acquire land from farmers for industrialisation? Or should the private sector do this?

I don't know India, but I know the sickness. I ask you, why doesn't private industry just buy the land? You find a poor farmer; he makes $1000 a year? Offer him $80,000 for his land. That's the way to make a slumdog millionaire. Why doesn't private industry just do that?

Let me try and guess why this doesn't happen. It's probably because you don't have a good property rights system, and you don't really know how to buy. I'm guessing. Because you lack legal titles, you don't know what you've bought. The next day a farmer can come back and say sorry, but you bought it from my cousin and I'm the real owner. So why do you ask the government to come in? You ask because it can bring a law to expropriate, compensate and in a way create the property title you don't have. So the problem in India is not whether government should buy or not but whether the private sector can make a deal with the farmer when the rights aren't clear. That's my guess.

There's a similar problem with slum redevelopment and rehabilitation, identifying those who have rights.

You see, property isn't only about real estate. It's about business. Every place I visited in Dharavi, you went inside, and upfront you had wares, then the factory, then in the loft there was the stock and behind it the housing. So if you go in and offer good housing, I'm going to say you are addressing me as a homeowner but that's not enough because you have to address me as a merchant and as an industrialist. So it's not just a housing problem. It's a property problem. Until you don't understand that's it's not housing, it's property—which means the legal environment as to who controls the assets—you are not going to be able to deal with the issue.

How do you best define cut-off periods for slum rehabilitation?

When you are addressing property rights, you are not talking just about legalising the squatters. You have to address the other problem, which is why are people squatting in the first place? Why don't they come in and buy property? Your question presupposes that squatting is costless. But squatting is an expensive proposition. You have to make deals with the mafia, cops, lawyers, Ngos.

Property isn't only about legalising those who are there. Since migrations will continue for decades, the challenge is to make it more interesting for people to come in and buy homes on credit. It will be cheaper and more secure because you get title in the beginning. The moment you do that, you don't have a cut-off problem. If you simply legalise all the time, it will just invite more squatters. Fundamentally, you have to therefore ask why Indians have to squat? Because property rights are out of sync. I can say this without knowing India.

What is your opinion of India's Unique ID number programme?

It's a good programme. But how will it work without property rights? It will be easy to give numbers to those whose place of residence you know. For the rest, it will be difficult. Identity is crucial but it needs a geographical dimension, especially if you want to follow where people are. Because the only thing on Earth that doesn't move is land.

Property rights is the best identity, because it not only tells you who you are, but also where you are, where you work, what you own, what you are in debt with. It's a lot more information than in your identity card. With an ID card, all I know is you is you.

He acquired global fame, and the attention of world leaders, by championing the cause of private property rights as an instrument for poverty alleviation in the developing world — Bill Clinton once called him the world’s greatest living economist. Now in New Delhi to deliver a lecture to FICCI members on ‘inclusive growth through property rights’, Hernando de Soto, the 68-year-old award winning Peruvian economist, also met Prime Minister Manmohan Singh, UPA chairperson Sonia Gandhi and Planning Commission Deputy Chairman Montek Singh Ahluwalia over the weekend.

In a conversation with FE, a day before his lecture, he however revealed his newest interest — analysing what went wrong with capitalism in the West using the framework of property rights.

Taking aim at the same financial derivatives that Warren Buffet described as weapons of mass destruction, de Soto said, “The biggest problem today in the world economy is that it’s not India that has the biggest shadow economy in the world, it’s not Peru or Mexico, it’s the West. They have got the biggest economy where nobody knows where the majority of the assets (derivatives) are — that’s a shadow economy.”

“According to my calculations, there are $170 trillion of stocks and bonds in the global market, $110 trillion of physical goods and that in total the world may have $400 trillion worth of assets. But you have anything between $600 trillion and $1 quadrillion (BIS estimates) worth of derivatives. There’s too many of them.”

But when asked if he would say derivatives should be banned, de Soto said, “No. First, we don’t know the facts. We have to determine how many there are. Second, we need to find out how many types there are. There may be 70-80 idiosyncratic types. So we have to find out: where are they? Who owns them? How many types are there? The next thing you need to know is what’s their value? $600 trillion or 1 quadrillion? In the old days, you had a mechanism called mark to market. But for derivatives it was seen as unfair. So now, for a start, put out a regulation that makes it compulsory to declare this information. That which isn’t declared doesn’t count. This will take care (of compliance). After getting all the information, you can decide whether these derivatives are weapons of mass destruction as Warren Buffet and George Soros say, and whether you have to ban them; or whether some are good, some are bad; or whether it’s all okay. But right now, we don’t know.”