Compensation for land under new Land Acquisition Act

By Dr. Sanjay Chaturvedi, LLB, PhD.

A new Bill will be enacted to address this issue. Land Acquisition, Rehabilitation and Resettlement Bill in India is most controversial and much awaited Bill. It is a much awaited bill for Land acquisition reforms and rehabilitation and settlement for the development projects and residential zones in India. On 7th September 2011 this Bill was introduced in Lok Sabha and it will be central legislation in India for the rehabilitation and resettlement of families affected by land acquisitions.

The Land Acquisition, Rehabilitation and Resettlement, 2011 Bill is also known as LARR Bill 2011 and LARR 2011. The Bill has 107 clauses.

LARR 2011 seeks to repeal and replace India’s Land Acquisition Act, 1894. The Bill seeks to enact a law that will apply when:

• Government acquires land for its own use, hold and control.
• Government acquires land with the ultimate purpose to transfer it for the use of private companies for stated public purpose. The purpose of LARR 2011 includes public-private-partnership projects, but excludes land acquired for state or national highway projects.
• Government acquires land for immediate and declared use by private companies for public purpose.

LARR Bill 2011 aims to establish the law on land acquisition, as well as the rehabilitation and resettlement of those directly affected by the land acquisition in India.

The scope of LARR 2011 includes all land acquisition whether it is done by the central government of India, or any state government of India, except the state of Jammu & Kashmir.

Clause 26 of LARR 2011 defines the method by which market value of the land shall be computed under the proposed law. Schedule I outlines the proposed minimum compensation based on a multiple of market value. Schedule II through VI outline the resettlement and rehabilitation entitlements to land owners and livelihood losers, which shall be in addition to the minimum compensation per Schedule I.

The market value of the proposed land to be acquired, shall be set as the higher of:

• the minimum land value, if any, specified in the Indian Stamp Act, 1899 for the registration of sale deeds in the area, where the land is situated; or
• the average of the sale price for similar type of land being acquired, ascertained from the highest fifty per cent of the sale deeds registered during the preceding three years in the nearest village or nearest vicinity of the land being acquired

LARR 2011 bill proposes that the minimum compensation be a multiple of the total of above ascertained market value plus a solatium. Specifically, the current version of the Bill proposes the total minimum compensation be:

• At least four times the market value for land acquired in rural areas;
• At least two times the market value for land acquired in urban areas

In addition to above compensation, the draft LARR 2011 bill proposes a wide range of rehabilitation and resettlement entitlements to land owners and livelihood losers from the land acquirer.

For land owners, the Bill proposes:

• an additional subsistence allowance of IN Rs. 36,000 (US$ 800) for the first year
• an additional entitlement of a job to the family member, or a payment of IN Rs. 5,00,000 (US$ 11,000) up front, or a monthly annuity totaling IN Rs. 24,000 (US$ 550) per year for 20 years with adjustment for inflation – the option from these three choices shall be the legal right of the affected land owner family, not the land acquirer
• an additional upfront compensation of IN Rs. 50,000 (US$ 1,100) for transportation
• an additional upfront resettlement allowance of IN Rs. 50,000 (US$ 1,100)
• if the land owner loses a home in a rural area, then an additional entitlement of a house with no less than 50 square meters in plinth area
• if the land is acquired for urbanization, 20% of the developed land will be reserved and offered to land owning families, in proportion to their land acquired and at a price equal to cost of acquisition plus cost of subsequent development
• if acquired land is resold without development, 20% of the appreciated land value shall be mandatorily shared with the original owner whose land was acquired

In addition to minimum compensation explained above, and additional entitlements for the affected land owners, LARR 2011 bill proposes the following additional entitlements to each livelihood loser:

• an additional subsistence allowance of IN Rs. 36,000 (US$ 800) for the first year
• an additional entitlement of a job to the family member, or a payment of IN Rs. 5,00,000 (US$ 11,000) up front, or a monthly annuity totaling IN Rs. 24,000 (US$ 550) per year for 20 years with adjustment for inflation – the option from these three choices shall be the legal right of the affected livelihood-losing family, not the land acquirer
• an additional upfront compensation of IN Rs. 50,000 (US$ 1,100) for transportation
• an additional upfront resettlement allowance of IN Rs. 50,000 (US$ 1,100)
• whether the livelihood loser is homeless or has a home on the proposed land to be acquired, he or she shall have a right to a house with no less than 50 square meters in plinth area

In addition to the above compensation and entitlements under the proposed LARR 2011, scheduled caste and schedule tribe (SC/ST) families will be entitled to several other additional benefits per Schedule II of the proposed bill. India has over 250 million people protected and classified as SC/ST, about 22% of its total population. The proposed additional benefits to these families include:

• an additional land grant of 2.5 acres per affected family
• an additional assistance of IN Rs. 50,000 (US$ 1,100)
• free land for community and social gatherings, and special Schedule V and VI benefits

Schedule III of LARR 2011 proposes additional amenities over and beyond those outlined above. Schedule III proposes that the land acquirer shall provide 25 additional services to families affected by the land acquisition. Some examples of the 25 additional services include schools, health centers, roads, safe drinking water, child support services, places of worship, burial and cremation grounds, post offices, fair price shops, and storage facilities.

LARR Bill 2011 proposes that Schedule II through VI shall apply even when private companies willingly buy land from willing sellers, without any involvement of the government.

The Bill as drafted mandates compensation and entitlements without limit to number of claimants. Thus, for clarity and as an example, if 1000 acres of rural land is to be acquired for a project, with market price of IN Rs. 2,25,000 per acre (US$ 5000 per acre), 100 families claim to be land owners, and 5 families per acre claim their rights as livelihood losers under the proposed LARR 2011 Bill, the total cost to acquire the 1000 acre would be

• Land compensation = IN Rs. 90,00,00,000 (US$ 20,000,000)
• Land owner entitlements = IN Rs. 6,30,00,000 (US$ 1,400,000) + 100 replacement homes
• Livelihood loser entitlements = IN Rs. 3,65,00,00,000 (US$ 70,000,000) + 5000 replacement homes

The average effective cost of land, in the above example will be at least IN Rs. 41,00,000 (US$ 91,400) per acre plus replacement homes and additional services per Schedule III to VI of the proposed bill. Even if the pre-acquisition average market price for land were just IN Rs. 22,500 per acre (US$ 500 per acre) in the above example, the proposed R&R, other entitlements and Schedule III to VI would raise the effective cost of land to at least IN Rs. 33,03,000 (US$ 73,400) per acre.

The LARR Bill of 2011 proposes the above benchmarks as minimum. The state governments of India, or private companies, may choose to set and implement a policy that pays more than the minimum proposed by LARR 2011.

For context purposes, the proposed land prices because of compensation and R&R LARR 2011 may be compared with land prices elsewhere in the world:

• According to The Financial Times, in 2008, the farmland prices in France were Euro 6,000 per hectare ($2,430 per acre; IN Rs. 1,09,350 per acre).
• According to the United States Department of Agriculture, as of January 2010, the average farmland value in the United States was $2,140 per acre (IN Rs. 96,300 per acre). The farmland prices in the United States varied between different parts of the country, ranging between $480 per acre to $4,690 per acre.