Indian land-acquisition rules eased by Modi executive order

The Indian government issued an executive order to make it easier for companies to buy land and eventually replace a law that has hindered manufacturing and constrained economic growth.

Prime Minister Narendra Modi's administration yesterday promulgated the ordinance to spur infrastructure development in rural areas. It exempts at least five categories of land acquisition, including for industrial corridors, from rules that require the consent of at least 70 percent of potential sellers. The order will need to be approved in the next session of parliament, which starts in February, if it is to come into force permanently, according to PRS Legislative Research.

"It will definitely bring more clarity for investors," said Dharmakirti Joshi, chief economist at Crisil Ltd. in Mumbai. "One of the main pain points has been the fuzziness of the land acquisition act. For any business to succeed, they want more clarity. Nobody wants to take a regulatory risk."

The measure is intended to boost growth in Asia's third-largest economy from near the slowest pace in a decade and accelerate Modi's plan to urbanize the nation. Not one large tract of land has been acquired for development since the nation's previous government passed an act in January 2014 that was supposed to make the process more transparent.

More than 1 trillion rupees ($15.7 billion) of projects are stalled as a result, including 600 billion rupees of roads, 20 new coal mines by state-run Coal India Ltd. and steel mills for ArcelorMittal and Jindal Steel & Power Ltd.

India's land laws have bedeviled development for decades as consecutive governments courted votes from the nation's 800 million rural residents. Previous rules forced owners to sell land if it was considered to be in the public interest. The laws were abused, leading to clashes between farmers and officials that fueled Maoist rebellions in some mineral-rich states.

Each of India's 29 states now will have to adjust its own laws to conform with the new federal policy, Finance Minister Arun Jaitley said at a briefing in new Delhi yesterday. Besides industrial corridors, other categories exempt from existing land-acquisition rules include: housing for the poor, rural infrastructure and defense. The move will bring only partial relief as manufacturers would probably still have to adhere to the existing law and some conditions such as rehabilitation and resettlement remain on all projects, according to Pulkit Patni and Mohit Soni, Mumbai-based analysts at Goldman Sachs Group Inc.

Power Grid Corp., Container Corp of India and Larsen & Toubro Ltd., India's largest engineering business, stand to benefit, they wrote in a report yesterday.

Power Grid and Larsen rose 0.5 percent in Mumbai and Container Corp. climbed 1.3 percent, compared with little change in the benchmark S&P BSE Sensex (SENSEX) index. Reliance Industrial Infrastructure Ltd. jumped 6.2 percent today, Adani Ports and Special Economic Zone Ltd. increased 7.8 percent to a record. This is the third time in December that Modi's government has resorted to issuing an executive order to accomplish an objective after parliament's session ended on Dec. 23 without votes on several key bills. Modi also has issued orders to permit more foreign investment in insurance and to make coal mining more transparent.