India Needs Legislations That Increase Land Supply

The National Democratic Alliance (NDA) government at the Centre has decided to allow the land acquisition ordinance to lapse on August 31. On August 30, Prime Minister Narendra Modi said that his government would not renew the ordinance. The government has also decided to revoke the controversial amendments in the bill. The situation, Modi said, would be the same as how it was, before his government came into power. Indian states will be free to enact legislations that they consider to be legitimate.

The PM said: "The proposal came from the states. Everyone felt if the farmer has to benefit, if we have to build canals to take water to farms, erect poles to take electricity to villages, make roads or houses for rural poor, we will have to get the law out of the bureaucratic tangles and so the proposal of changing the law came."

It is expected that if Modi leaves the land acquisition Bill to states, they will use their power wisely because they have a greater stake in their own development. As the NDA's amended Bill was designed to make land acquisition easier, it would have ensured that farmers were compensated and rehabilitated in a shorter period of time. Farmers are also likely to gain more from land acquisition when transactions are easier and faster. The previous United Progressive Alliance (UPA) government's version of the land acquisition bill will constrict the supply of land in India.

If projects have to pass social impact assessment test and obtain the consent of 70-80 per cent of owners, land available for infrastructure and manufacturing projects would be less. When the supply of land for infrastructure and manufacturing projects is constrained, less land will be available for residential projects and urban expansion, too.

In India, the supply of land is constricted because it is not easy to convert agricultural land for other purposes. Returns from farming in India is low, and the difficulties involved in converting agricultural land or commercial, industrial or residential uses prevent India from urbanising as rapidly as it should. When land acquisition is difficult, middlemen are more likely to benefit from land deals, because the process of acquiring land would be a long, complex procedure that involved obtaining approvals from various government agencies.

Moreover, when acquiring land is a time-consuming process, many otherwise feasible projects would become unprofitable.

Expansion of urban land is essential for the residential sector to grow, because living spaces in large Indian cities are more constrained. This need not be so. Much of the land in urban India is owned by government agencies, and is often underutilised or idle. Real estate in Delhi is very expensive. However, in Delhi's Lutyens' zone, for example, ministers live in the centre of the city in bungalows, with lawns that extend over an acre.

The Urban Development Ministry has decided to reduce the Lutyens' Bungalow Zone by 5.13 sq km, from 28.73 sq km to 23.6 sq km. This would make redevelopment of properties in Delhi. In Lutyens' Zone, owners of property cannot add an extra floor, if these buildings already have two floors. This might change if the floor area ratio (FAR) norms in the Lutyens Bungalow Zone (LBZ) are revised. We need more such legislations that increase the supply of land in India's metropolises.