India steps up policy overhaul with land law approval
Bloomberg in New Delhi, Mumbai and Singapore
India approved changes to a century-old land law and set up a panel to speed up infrastructure projects as Prime Minister Manmohan Singh extends a policy overhaul to revive economic growth.
Amendments to the colonial-era Land Acquisition Act may help the government curb often violent protests that have stalled projects for industry and highways. The cabinet committee also allowed the establishment of an infrastructure panel and a 30 per cent reduction in the sale of airwaves.
The approvals add momentum to Singh’s policy agenda by addressing transportation and energy bottlenecks that have handicapped growth in Asia’s third-largest economy. The prime minister has already won support to open the economy to overseas retailers, the biggest embrace of foreign investment in a decade, as he bids to repair the government’s reform credentials before national elections in 2014.
“The key here is that the government clearly wants to keep up the reform momentum,” said Robert Prior-Wandesforde, an economist in Singapore at Credit Suisse Group, who has covered the Indian economy for almost seven years.
“It wants to signal to the Reserve Bank of India, as well, that it’s committed to a series of economic reforms of the sort that the RBI would appreciate.”
The economy expanded 5.3 per cent in the three months ended September 30 from a year earlier, slowing to match a three-year low. Central bank governor Duvvuri Subbarao, in the last policy meeting in October, resisted calls from Finance Minister Palaniappan Chidambaram for lower interest rates to spur growth.
Singh will head a new panel aimed at speeding up approvals of infrastructure projects. The prime minister is seeking US$1 trillion in investments for highways, ports and power plants from 2012 to 2017 to spur development.
After at least two years of debate, the cabinet yesterday agreed to make it mandatory for companies buying land to win the approval of 80 per cent of landholders. For public-private partnership projects, 70 per cent of the landowners need to give consent, according to Parliamentary Affairs Minister Kamal Nath.
Abuse of the 1894 law that allowed the state to seize land at cheap rates if it believes there’s a larger public benefit, such as the creation of jobs, has led to clashes between farmers and provincial administrations, and fuelled Maoist rebellions in some mineral-rich states, including Chhattisgarh and Odisha. Among investments postponed is a US$12 billion project first proposed by South Korean steelmaker Posco in 2005.
The law will be applied retrospectively in certain cases and also seeks to boost the money paid to farmers. Rahul Gandhi, who will lead the Congress party’s election campaign ahead of parliamentary polls in 2014, has championed the land law changes.
India’s monetary authority predicts the US$1.8 trillion economy will expand 5.8 per cent in the year ending March 31, which would be the slowest pace since 2003, according to government data. Growth will rebound to 6.7 per cent in the year through March 2014 from an estimated 5.5 per cent in the current fiscal year, according to Goldman Sachs.
Singh’s minority government needs the backing of regional parties to secure approval for the land acquisition legislation. The prime minister in mid-September curbed fuel subsidies, allowed foreign investment in aviation, and last week won votes in both houses of parliament over his plans to permit the entry of foreign supermarket chains.
“The prime minister is beginning to think more and more about his legacy,” Prior-Wandesforde said. “The measures we saw in September and these more limited steps yesterday in part are an attempt to signal that he is a reformist, has been a reformist and that is what he wants his legacy to be.”