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How "Faster" Land Acquisition and Environmental Clearances May Harm the Economy: November 2014


How "Faster" Land Acquisition and Environmental Clearances May Harm the Economy: November 2014

Glance at any "top five" policy list in India's business media and you're likely to find "faster environmental clearances and land acquisition" - or some variation on that theme - in the list. For instance, Fitch Ratings claims "tough environmental clearances and regulatory approvals" are "key challenges" before the country.

By Manoj K (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia CommonsSuch logic certainly looks attractive. In a country with crippling shortages of basic infrastructure, and with a severe crisis of underemployment, don't we need quick access to natural resources for "development"?  Therefore, shouldn't the government institute an "easy", "single window" approvals process - coupled with "generous" compensation to "farmers" to address any opposition?

In this briefing, we examine these issues more closely. What we find is precisely the opposite of what is usually claimed: in reality, land is underpriced and acquisition is too easy; clearances are guaranteed and given quickly.  Rather than addressing the real root cause of the problem, the 'reforms' being pushed at present are likely to:

  • Increase cronyism and non-transparent, arbitrary allocation of resources, as in previous "mega-scams";
  • Fail to address delays and resource bottlenecks for necessary infrastructure, inducing more delays;
  • Increase impoverishment and resultant social conflict (now affecting at least a quarter of India's districts), particularly in resource rich areas;
  • Increase the risk to India's financial system from bad loans, investor defraudment and overall volatility.

1. What the Data Says About Environmental and Forest Clearances

To anyone following the mainstream debate, the available data on regulatory approvals1 shows some surprising facts:

  • Clearances are usually granted quickly: Between 2001 and 2010 90% of construction, hydropower and industry projects completed the entire process of environment impact assessment, public hearing and clearance within a year (when, for large projects, in fact a year is the normally recommended time for impact assessment alone).
  • Clearances are essentially guaranteed: In 2009 and 2010, 99% of the projects that applied for environment clearance received it; between 2004 and 2013, 99.97% of projects that sought forest clearance received it. Since May of this year, exactly one out of 65 applicants for forest clearance was rejected.
  • Clearances are granted for far more than the capacity required for a sector: Between 2007 and 2011, the Centre for Science and Environment found that coal thermal power projects with a total capacity of 176,000 MW were granted clearance - which is twice the thermal power capacity India has managed to install since 1947, and 40% more than the target up to 2017. Similarly, in the same five years, steel and cement projects with more than double existing capacity (steel) or double the targeted capacity (cement) were cleared. As we shall see below, though, it's entirely possible that many of these "cleared" projects will never come up.

Moreover, it isn't clear if the problems commonly attributed to clearances actually have much to do with them. For instance, India's power crisis. Technical faults are responsible for more power plant shutdowns than coal shortages, and power crises in some states may have more to do with private power companies seeking higher tariffs. Yet these issues hardly receive any attention in policy debates. This raises two disturbing questions:

Why are there so many voices calling for "speedy clearances"?

Why do we still have such an infrastructure shortage - if clearances are neither slow nor difficult to get?

2. A Regulatory System Built Around Arbitrariness

India's environmental and resource regulations have two basic features. First, they are project-specific: they grant approvals to individual projects. Second, they are bureaucrat-centric: all decisions are eventually taken by either single officials or bureaucratic committees. Land use plans, sectoral plans, or landscape assessments are never integrated. Hence, regulation is essentially an ad hoc exercise, without any relationship to overall policy goals.

The quality of information available to regulators is also poor. Mining allocations are made by closed door committees based on company submissions. Environmental clearances are based on impact assessments paid for by project proponents. Forest clearances are based on a single site visit by a local official. Some procedures do include some form of public consultation. However, this is usually undermined or ignored. The systematic - and illegal - bypassing of the Forest Rights Act's requirement for village consent for forest land use is a typical example. Public hearings for environment clearance are generally poorly organised or actively undercut, (this being a typical example). As a result, there is no objective or neutral information available in the regulatory process.

Given these facts, it is not surprising that most projects are cleared quickly. Where is the "bottleneck", then? Is it because of the difficulty in obtaining land?

3. Opposition to Land Takeover Isn't Just About Compensation and Rehabilitation

Ranjan Swain is a betel leaf farmer in Jagatsinghpur district, Orissa. He belongs to a relatively prosperous community. Betel leaf cultivation is relatively easy in terms of labour; and with the right kind of soil and certain specific skills, a tenth of an acre is enough to sustain a family year round. His children are getting educated and he's living a good life. Or, rather, he was, until 2005.

Sanhati.com POSCO PhotosNow, he and his fellow villagers live in a state of siege, and his village is ringed by police battalions. 230 police cases have been filed against over 2,000 people - including Swain - and several violent clashes have occurred. Swain's been to jail several times on what he calls trumped up charges. Going out to trade and get supplies is fraught with risk. Swain lives in Govindpur, a village whose lands are targeted for takeover by the POSCO project - a steel plant and iron ore mine that is India's largest foreign direct investment. He is a leader of the POSCO Pratirodh Sangram Samiti (PPSS) - an organisation formed to oppose the project.

But the Orissa government claims it has offered "generous" compensation (Rs. 11 lakhs, or 1.1 million, per acre), that Swain and more than 3,700 other families are not even legal landholders, and that the project will generate 17,000 jobs (directly and indirectly). But despite all this, and despite living under terrible conditions, Swain and the PPSS continue to oppose the project. The question is: why?

Among government and policy elites the usual answer is that such protests are instigated by NGOs, Maoists and so on. But this explanation is less convincing when one considers that such conflicts now affect at least one quarter of India's districts. Clearly, something more than "instigation" is at work.

3.1. Understanding India's Land Laws

Laws relating to land and forests in India were given their basic structure in the British period. With their primary interest being trade, extraction of revenue (from agriculture) and timber (from forests), the colonialists instituted land law regimes built around either identifying single individuals for tax payments - the zamindari, ryotwari and mahalwari settlements - or declaring "government forests." To this day, non forest land in India is described as "revenue land."

Hence all British laws tended to reduce common lands to "waste land" - one third of Bengal and Bihar was described as 'wasteland' by Lord Cornwallis - and to ignore the rights of those actually using the land for production. The British had no interest in these matters, but those affected naturally did. Resistance began spreading, in some cases directly (as in the adivasi uprisings against the forest laws) and in others through revolts against landlords and in defence of common lands. Both land records and land laws became an unholy mess, marked by constant contestation over who owns what, what to do about those with unrecognised rights, and how to address common use. As a result, the land situation in India today is characterised by:

  • Large areas of common lands (34% or more of the country's land area) that are either unrecognised or weakly protected: According to the National Sample Survey Organisation, 15% of the country's non-forest land is common land. A further 19% is government forest land, the vast majority of these are used as common resources. Hence common lands constitute approximately 34% of the country's total land area. Most laws to protect these lands are very poorly implemented.
  • Non-recording of land use and land rights: It is very common for land holders to not have title to their own lands - often over decades. For instance, as of September 30, 2014 under the Forest Rights Act nearly 1.5 million titles have been awarded - which means that prior to 2008, at least 1.5 million families were cultivating or using land that was not recorded. This at a time when it is clear that implementation of the Act is extremely poor, and several times more people are entitled to rights. Indeed, only 271 of the 4,000 odd families that will lose their land to POSCO have title; the land the remainder are cultivating - for more than a century - was notified as protected forest in 1961 without any survey. The law says this notification cannot harm any "existing rights", but that's exactly what is now sought to be done, even after three official committees all concluded that the Forest Rights Act is being violated in this project.
  • Shifting, varying and overlapping rights in private property: Most of India's land reform laws were never fully implemented, leaving tenants, sharecroppers, and other partial rights holders in a very ambiguous position. Many people's titles are also not absolute: tribal lands cannot be sold to non-tribals in most States, titles awarded under land reform or the Forest Rights Act cannot be sold, and so on.

Hence, two basic principles have to be kept in mind when considering takeover of land for projects:

  • Landowners with full unconditional private title are often just a minority of those who will lose their livelihoods. But only they are given any compensation at all, which in turn is often underestimated. Neither are common lands compensated for, nor are other land users compensated at all - and protest is the unsurprising result.
  • The "market price" frequently does not exist. The market is frequently restricted (e.g. tribal lands), non-existent (e.g. conditional titles), or irrelevant (e.g. common and forest lands). Hence compensation is often absurdly low - POSCO is offering the Jagatsinghpur farmers a quarter of the income their land generates in a single year as their total, one time compensation.  Those affected see little hope in the prospect of replacement of a secure source of livelihood - however poor - in the form of land, with the uncertainty of (mostly casual) employment from projects. POSCO is once again a good example - the estimate of  17,000 jobs comes from a "cost benefit analysis" paid for by POSCO, and the said report does not account at all for the actual cost of the project in terms of destruction of existing livelihoods (estimated to employ more than 50,000 people).

Hence, where land acquisition does succeed, it is almost inevitably taken over far more easily and at a far lower value than it actually merits. Once again, then, the media debate appears to reflect exactly the reverse of the actual situation.

4. The Dangers of Accelerating Resource Takeover

As a result of the above, the system rewards those who are able to "fix" the process - who are able to navigate the bureaucratic system of approvals, and to ensure state support against any opposition. In turn, this encourages profiteering and cronyism; many of these actors are not interested in full scale production, but in making quick profits.

This pattern is repeated in sector after sector. As we mentioned in our October 2014 India Briefing:

  • In 2012 it was reported that less than fifteen of Chhattisgarh's planned sixty private power plants are likely to ever come up. One company worth Rs. 5 crores (50 million) was granted the necessary permissions for a project worth Rs. 1000 crores (10 billion).
  • Similarly, in Arunachal Pradesh hydroelectric power project licenses have been given to companies involved in "seeds, travel, highways and real estate." Hydel PPP contracts require Rs. 13,000 crores (130 billion) from a State government whose total annual budget is Rs. 3,535 crores (35.35 billion). Obviously, most of these projects will never come into existence either.
  • CAG audits of land acquisition in Orissa and Rajasthan have found that the majority of the land acquired is either unused or is being used for speculation. There is enormous vacant land lying in Special Economic Zones.

4.1. The Threat to the Financial System

This combination of rewarding manipulators, while generating social conflict, also has a direct impact on creditors of the project proponent. Loan defaults naturally follow when projects fail to ever come up or to generate their projected revenues. As India has no bankruptcy law, promoters get away with "restructuring" or "evergreening" these bad loans. Such bad loans are now a serious threat to the health of the Indian banking system; the majority are from the infrastructure sector, and the total continues to rise despite all the "reform" measures that will supposedly address them.

In short, the prevalence of arbitrary and corrupt resource regulation is now a serious threat to the banking system. Bank bailouts will only reinforce this vicious circle.

5. The Current "Reforms": Going in Entirely the Wrong Direction

Hence, a reform process would have to address::

  • Making the clearance and regulatory process accountable to the public and to affected people: Without this, irrational grants of clearances based on corruption will continue.
  • Land transfers have to be done in a democratic, holistic and transparent manner that allows for multiple claims to be negotiated and addressed. Without this there can be no remedy to the just claims of those affected by projects.
  • Land use planning and overall policy goals have to be taken into account, and the process regularly evaluated to ensure that goals are being met. An enforceable land use plan with a democratic process of recording common lands would be a vital first step.

Unfortunately, the current "reforms" are heading in exactly the opposite direction. Three broad trends are apparent:

  • Increasing the powers of bureaucrats while decreasing their accountability: Most of the recent changes would give select officials enormous powers. For instance, a Divisional Forest Officer (rather than the Central government) can now permit use of forest land by any project, if it promises that it will "not cut trees". Similarly, expansion of coal mine capacity (by up to 16 million tonnes) can now be cleared without a public hearing. As noted above, forest dwellers' rights and powers have been steadily undermined in favour of empowering civil servants - often illegally. Proposed amendments to the Land Acquisition Act would remove or greatly dilute requirements for taking the consent of affected persons - a key safeguard against the kind of manipulation, and the abysmal rehabilitation, that currently characterises land takeover. A similar requirement in the Forest Rights Act is already being grossly violated. Decreasing accountability of officials in an already extremely centralised and arbitrary system will encourage, not discourage, the kind of cronyism that "reforms" are ostensibly supposed to end.

  • Encouraging non-serious and speculative project applications: Some "reforms" seem to be specifically aimed at making it easier for unviable and non-serious project promoters to secure approvals. In the October India Briefing, we noted that the Reserve Bank of India and the government - while being fully aware of the risks - are nevertheless diluting financial safeguards for granting of credit to infrastructure projects as well as making arrangements for bailing out banks affected by bad loans. Since a great deal of resources are being either blocked or wastefully used by such project proponents, providing them with further encouragement is clearly a wrong move.

  • Preventing collection of independent information: The Right to Fair Compensation, Resettlement and Rehabilitation During Land Acquisition Act of 2013 - the new Land Acquisition Act - provided for a Social Impact Assessment to assess the overall impact of a project. This was a first step towards taking into account the complexity of land takeover in India. This is now to be scrapped. Within the environmental clearance process, as noted above, Environmental Impact Assessments are prepared by consultants paid by project proponents. Now, even the very minor safeguard of allowing the Expert Appraisal Committee to require additional studies - where the EIA is found to be insufficient - has been removed. As a result of such changes, both cronyism and social conflict are likely to increase.

The TSR Subramaniam-headed High Level Panel - whose report was submitted as this briefing was being released - takes much the same approach.

But why then are such changes being pushed? It appears that the policy discourse in India is almost completely dominated by large infrastructure companies. These companies do not face either delays or unnecessarily rigid regulation, as seen above.  But what they do object to - though not in public, for that would be self-incriminating - is the extraction of bribes for decision-making. Such corruption naturally flows from the centralisation of power, lack of public accountability and the arbitrariness of decision making inherent in the current system. But addressing these root causes is not in the interest of these companies. Real reforms would reduce their ability to secure massive profits from regulatory arbitrage, privatisation of public resources, and loose credit flows. Hence the remarkably one-sided and irrational nature of the "reforms" being sought to be pushed through.

However, our analysis indicates that if such "reforms" continue, the overall result will be: more injustice and social conflict; further irrational wastage of natural and financial resources; and a continued infrastructure crunch in the country.

  1. Data on land acquisition is notoriously difficult to obtain.