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Modi issues executive order to ease land acquisition in India

In this Thursday, Sept. 25, 2014 file photo,

In this Thursday, Sept. 25, 2014 file photo, Indian Prime Minister Narendra Modi addresses business leaders as he launches his "Make in India" initiative, prior to his scheduled departure to the U.S. in New Delhi, India. Credit: AP

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 today 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.”

Besides industrial corridors, other categories exempted from existing land acquisition rules include: housing for the poor, rural infrastructure and defense.

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.

Bedeviled Investors

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 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 today.

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 bills. Modi also has issued orders to permit more foreign investment in insurance and to make coal mining more transparent.

Modi’s Bharatiya Janata Party, which controls 52 percent of seats in the lower house, holds only 18 percent of the 245- member upper house. Since it’s improbable Modi will be able to control the upper house before 2018, he needs to find alternative ways to bring legislation into force.

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