By Aman Thakker & Vikram Albrecht —

• Status: In Progress – The 2013 Land Acquisition Act requires the consent of 70 to 80 percent of land owners before any land can be acquired, and mandates higher-than-market rates for land acquisitions for rural and urban land
• Difficulty: High – Land acquisition is an extremely politically tricky subject and attempts to relax rules on acquiring land have been criticized as anti-farmer and anti-poor. With the government not yet holding a majority in India’s upper house, progress on any new law replacing the 2013 Land Acquisition Act will be difficult.

This is the fifteenth installment in a series of articles on the Modi Reforms Scorecard by the staff and experts at the Wadhwani Chair in U.S.-India Policy. The series seeks to provide analysis on why reforms marked as “Incomplete” or “In Progress” have not been completed, and what impact such reforms could have on specific sectors or the economy at large.

During the 2014 general elections, the Bharatiya Janata Party led by Narendra Modi bemoaned that the “opacity of the land acquisition process,” and promised a series of new reforms on national land use. As Modi took office as the prime minister of India, observers reiterated the need for “sweeping land reforms” and welcomed the promise of the prime minister’s commitment to the issue. However, despite high hopes and expectations, Prime Minister Modi completed his five-year term with his efforts of land reforms incomplete.

The Need for Reform

Land reforms are crucial as Prime Minister Modi looks to fulfill his promises under his “Make in India” plan to create millions of manufacturing jobs in India. Indeed, the program calls for a transformation of India “into a global design and manufacturing hub.” However, India’s onerous land regulations have been preventing progress on this front.

The head of India’s Confederation of Indian Industry recently said that “The private sector is finding it extremely difficult to get land for projects.” Companies had specifically pointed to the UPA government’s 2013 Land Acquisition Act as the cause for making land acquisition in India “virtually impossible.” This act included strict provisions regarding consent of landowners, assessing the social impact of any proposed project, and limitations on acquiring irrigated multi-cropped land. The managing director of Hindustan Construction Company said that, under the law, “it would take 58 months — if everything went right.” He went on to say that with “the usual bureaucratic delay it will easily double that.”

Such difficulties have led to global business looking past India to set up their manufacturing bases, particularly as they look to redraw supply lines following the ongoing trade dispute between the United States and China. According to the International Trade Commission, Mexico, Vietnam, South Korea, and Taiwan have been the top choices for business to relocate. India, however, has not benefited as businesses pointed to “delays in land acquisition for private factories” as a reason that countries have taken their businesses elsewhere.

Unsuccessful Efforts and Dashed Hopes

When Prime Minister Modi took office, he inherited the 2013 Land Acquisition Act, which he saw as a direct challenge to his development agenda, as hurdles to land acquisition made it difficult to foster the creation of a strong manufacturing base in India. The 2013 Act overturned an 1894 land acquisition law which had previously allowed the government to assume any land it wanted, even without consent of the private landowner. While the 1894 act had its flaws, the 2013 Land Acquisition Act heavily restricted the government’s power, making it almost impossible to acquire land for any reason.

Prime Minister Modi’s first attempt to amend the 2013 Act argued that the law’s empowerment of landowners made acquiring land more difficult for the center. However, this attempt sparked an almost-immediate nationwide backlash labeling the bill as anti-farmer. The law was challenged in the courts, with the Supreme Court of India eventually dismissing his challenges, confirming the law’s constitutionality in 2014. Without other options, Modi used his executive power changing the law into an ordinance.

In May 2015, the Modi government made another amendment attempt with the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill. This bill would have enabled the center to exempt five specific categories from the social impact assessment requirement, the multi-cropped land restrictions, and the consent regulation for private and public private partnership (PPP) projects. The definitions of these categories were intentionally left vague to give Modi’s new powers more flexibility. However, without the necessary support, the bill failed to pass the upper house, thereby halting all progress on land reforms.

Despite complaints from the private sector and the prime minister about India’s onerous and time-consuming land acquisition process, India has made little progress on making it easier to acquire land in India. However, if India would like to take advantage of shifting global supply chains and achieve its vision of development and job creation led by a strong manufacturing base, it will need to simplify its rules on land acquisition.

Mr. Aman Y. Thakker is a Research Associate with the Wadhwani Chair in U.S.-India Policy Studies at CSIS. Follow him on twitter @AmanThakker. Mr. Vikram Albrecht is a research intern with the Wadhwani Chair in U.S.-India Policy Studies at CSIS.