How Fair is “Fair Compensation” Under India’s New Land Acquisition Act?

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ImageThe much anticipated Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (“the Act”) has just come into force in India on January 1st, 2014. Unlike the replaced 1894 legislation, this act addresses the rehabilitation and resettlement of those who depend on land, in addition to land owners. As emphasized in its title the new act places a greater emphasis on transparent processes at various stages: for example, through its mandatory social impact assessments, public hearings, and dispute resolution mechanisms.  
The other key emphasis in the act’s title refers to a new compensatory mechanism. The new act now provides for up to two times market value, against one time in the previous act and this figure is then doubled by applying a one hundred percent “solatium” against 30% in the previous act (additional compensation). Though people get more compensation under new  act, an increase in multiplier does not address the fundamental question of determining “market value”  in a country where registered values under-represent land purchase price to evade high stamp duties.  The challenge is exacerbated in rural areas where there are fewer land transfers, and therefore fewer registered sales deeds to use as reference points. In such situations, a valuation that is perceived to be more “fair” can be found only through consultations and dialogue, as demonstrated by two case studies from World Bank financed projects in India:

ImageThe Rampur Hydro Project is a government-owned project in the mountain state of Himachal Pradesh. When it was being prepared in the mid-2000s, consultations with project-affected communities revealed they were dissatisfied with the standard compensation rates being offered to them by the state government because they are significantly lower than the prevailing open market rates (between USD $6,000 to USD $12,000 per hectare). Several consultation sessions were held between the villagers, the project developer and the state government which resulted in the state government agreeing to re-examine the land valuation process. Several new aspects such as the nature and use of the land, court enhanced  rates and land rates paid by the private sector were factored into in  revising the market value of the affected lands, which was between four to ten times higher than original compensation offered. The community was happier with these new rates and accepted them. Today, the project is nearing completion and will soon be supplying much-needed electricity to the Indian grid. Many villagers have used the compensation money to buy more land elsewhere, improve their homes, plant new orchards, or set up new businesses. 
Multiple consultations are an integral part of the negotiated settlements facilitated by the Bank in a number of highway projects in Punjab, Tamil Nadu and Uttar Pradesh states. In a highways project in the Indian state of Gujarat, the project authorities adopted a two-step process to determining compensation value. First, a valuation under the then prevailing land acquisition act was determined and followed by a comparison with Town Planning and Valuation Department’s methodology consisting of factors such as proximity of land to amenities and transport. Any difference was paid to land owners as a “top up” in addition to land acquisition compensation and seventy-two percent of land owners received some amount of top-up under this methodology. This approach ensured that land acquisition process was not bypassed, but that where valuations could be enhanced using different methodologies to be more closely reflect the market value.

In implementing the new act this openness to dialogue between all stakeholders, and a commitment to exploring mutually acceptable supplementary valuation methodologies will continue to be important if land owners are to benefit from the “fair compensation” envisaged by the act. 

However, the availability of a variety of alternate valuation methodologies cannot be a long term solution. The differences in resulting market rate that they establish underscore the role not just of dialogue, but of underlying power dynamics at play in negotiations over which particular methodology is adopted. A more fair long term solution will only lie in successfully addressing underlying challenges to establishing an impartial, uniform basis for evaluation of market value of land, both in rural and urban areas.


I.U.B Reddy

Senior Social Development Specialist

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