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India Clears Order to Ease Land Acquisitions in Reforms Push

  • Reuters

FILE - Indian Prime Minister Narendra Modi attends 25th ASEAN Summit in Naypyitaw, Myanmar, Nov. 12, 2014.

FILE - Indian Prime Minister Narendra Modi attends 25th ASEAN Summit in Naypyitaw, Myanmar, Nov. 12, 2014.

India passed an urgent executive order on Monday to ease land-acquisition rules in sectors like power, housing and defense to kick-start hundreds of billions of dollars in stalled projects, though investments are unlikely to flow in immediately.

Restrictions on buying land, under a law championed by the last Congress government, are among barriers holding up projects worth almost $300 billion. Several states had asked Prime Minister Narendra Modi to overhaul the law enacted in January.

Finance Minister Arun Jaitley said projects in defense, rural electrification, rural housing and industrial corridors would not need to seek the consent of 80 percent of the affected landowners as mandated.

They will also be exempt from holding a social impact study involving public hearings — procedures that industry executives say can drag out the acquisition process for years. Compensation to landholders, however, will stay at four times the market price.

An ordinance is an emergency measure that has to be passed by the next parliamentary session. Modi has already resorted to using it three times in his six months in office due to a lack of majority in the upper house of parliament.

After the last parliament session ended in a legislative logjam on Dec. 23, Modi passed two orders to let foreign firms raise their stakes in insurance ventures and allow commercial mining of coal.

Parliament, which reconvenes in February, did not ratify the November ordinance on coal, forcing Modi to pass another ordinance to let the government auction coal mines and allow private companies to mine and sell the fuel.

“Governments must act with determination. The government must have the desire to implement its decisions,” said Jaitley, a key lieutenant to Modi, responding to opposition parties' criticism that such ordinances undermine the parliamentary system in a democracy.

Modi is also considering changes to the Mines and Minerals Development and Regulation Act to auction minerals like iron ore and bauxite. But the government has yet to take a decision on an ordinance for it, Jaitley said.

Analysts reckon reform through ordinances has its risks.

“While ordinances can be reissued once they lapse, they may not be perceived as a stable solution by investors wanting secure property rights,” HSBC Securities analysts wrote in a note. “We, however, believe it is an important step to signal the government is serious on reforms.”