Land Bill: Landing a right note?

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Bill, 2013 (formerly known as the Land Acquisition, Rehabilitation and Resettlement Bill, 2011), has quite understandably, created a stir. Ever since the bill was passed in the Lok Sabha last week, the debate has largely centred around the negative impact on India Inc but it is too early to call it as a victory for landowners. On Thursday, the Parliament passed the amended version of the Bill wherein the proposed law would not apply to irrigation projects where environmental impact assessment is required under the provision of any other law already in place. The government also agreed that farmers whose land was acquired for irrigation projects will either get compensation or be given resettlement package.

 

INVESTMENT TREND

One of the key proposals of the Bill is the rehabilitation and resettlement (R&R) of not just landowners but also project-affected people.

People whose land and habitation have been taken over without their consent by the state government or companies have resorted to protests, as a result of which all development projects are viewed with suspicion. The examples of acquisition of Singur land in West Bengal by the Tatas or the Reliance SEZ in Maharashtra are stark examples of this growing discontent.

Let’s quickly scan through key proposals before assessing its impact on stakeholders-

  • Private companies to provide for rehabilitation and resettlement if land acquired through private negotiations is more than 50 acres in urban areas and 100 acres in rural areas.
  • When land is acquired for use by private companies or public private partnerships (PPP), consent of 80% and 70% of landowners is required
  • Compensation up to four times the market value in rural areas and twice in urban areas
  • Companies can lease the land instead of purchasing it, but the decision is that of the state rather than the land-owner.
  • If the land is sold to a third party, 40% of the profits will have to be shared with the original owners.
  • Affected “families” would include farm laborers, tenants and workers who have occupied the area for up to three years before the land acquisition. Such persons will have to given a job or compensation of Rs 5 lakh, an allowance of Rs 3,000 a month for a year.

land for sez

Infrastructure companies are crying hoarse that higher compensation could delay projects, spike property, infra costs and in some cases also make land acquisition for industrial projects nonviable.

Kisan Maha Panchayat: No land acqusition

They further argue that buying land for large projects like integrated townships will become difficult and contend that bigger government role in the whole process is a throwback to the Licence Raj era.

A quick look at some of the big-ticket projects will throw some insights into land acquisition costs as a component of overall project costs.

The mega Delhi Mumbai Industrial Corridor is a $90 billion project. The mega infrastructure project between the Japanese and Indian government has set aside Rs 1,200 crore for land acquisition under Phase-1 of the project cycle. Of course, going ahead, the costs would multiply several times. But what is the big fuss about this? Once the project is up and running, the operators would recover the money, much higher than their investments, from their customers.

 

ORISSA CASE

Similar is the case with Posco’s much-hyped $12 billion steel plant in Orissa. The project, that has run into trouble with locals over alleged forceful eviction against project opponents, initially required over 4,000 acres of land near Paradip in Orissa but was later scaled back to 2,700 acres. According to latest reports and data available in public domain, the state claims to have acquired about 2,700 acres of land and paid compensation to 1,132 people. So far, ‘Rs 21 crore has been paid to the affected farmers for demolishing their betel vines ’. No compensation has been paid towards land as these vines and tree were planted by the villagers on the government land. In Posco’s case, land acquisition costs and Rehabilitation and Resettlement expenses are nil or very minuscule as entire land is government owned.

However, it sounds childish and laughable on the part of India Inc, setting up projects worth thousands of crores, to keep fuming at compensation costs and arguing that land acquisition costs alone would make projects nonviable. What should really worry corporate India is the lengthy process in securing possession of the land. The Bill calls for appointing several committees of activists and “experts” as part of social impact assessment. This would be followed by the Rehabilitation and Resettlement Committee. The multiplicity of agencies would only lead to bureaucratic red-tape and delay the whole process.

 

approval time

As for landowners, their rights have largely been protected. Only when 70% of project-affected land owners give their consent, can companies go ahead with the acquisition process. Since land prices shoot up substantially when industrial projects come up in an area, it is only fair that landowners are paid more than the ‘market price’. Due to lack of clarity on land holdings and titles, involvement of the state government would facilitate the transfer.

The bill will eliminate the trust deficit between land owners and corporate India and ensure that the benefits of development on the acquired lands accrue to land owners and others dependent on the land. Instead of bemoaning the provisions of the bill, India Inc should welcome the legislation as it eliminates uncertainties and lays out clear guidelines for land acquisition without which setting up projects was next to impossible.

 

Indian Media: Going Strong

In January last year, Reliance Chairman Mukesh Ambani surprised one and all by investing over Rs 1,700 crore in Raghav Bahl’s debt-ridden media entities Network 18 and TV18 Broadcast that would give him access to ready-made content.

The deal reflected the attractive growth opportunities present in the media sector, considered as ‘sunset’ industries in developed markets but flourishing in India. The readership in newspaper industry may be declining in many international markets with the advent of digital media but continues to thrive in India, thanks to increasing literacy rates and higher disposable income coupled with growth of regional and special interest newspapers.

MEDIA SEGMENT GROWTH

In 2012, media and entertainment (M&E) industry grew at 12.6 per cent to Rs 82,000 crore, says a Ficci-KPMG report. While a slowing global economy and reduced advertising budgets is likely to pull down growth slightly to Rs 91,700 crore this year, the future looks promising.

Driven by digitization, strong growth of regional media, upcoming elections, burgeoning film industry and fast increasing new media businesses, the sector is set to grow at a healthy rate of 15.2% to reach Rs 1.66 lakh crore by 2017.

Last month, DB Corp, which publishes eight newspapers with 65 editions in Hindi, Gujarati and English including Dainik Bhaskar and Divya Bhaskar reported strong set of numbers with net profit rising by 74% to Rs 76 crore. The Kalanidhi Maran-owned Sun Television Network also saw net profit rising to Rs 164 crore during the June quarter while HT Media clocked a net profit of Rs 47 crore. Reliance Broadcast and Dish TV narrowed their losses during the quarter.

RESULTS

 

The print media accounts for 46% of the total ad spending by advertisers.  Despite the surge in alternative media (private TV, radio and internet) over the past three decades, print holds value and derives its appeal from high degree of regionalization and localization, broad based coverage, etc. However, off late, slowing ad revenue growth and rising newsprint prices have forced companies to cut down on non-profitable editions to stay afloat. Regional markets (especially Hindi) have been growing faster than metro-focused English markets.

Markets beyond tier-1 cities are largely catered to by the regional print media (Hindi and other languages). Also, the penetration of digital media in these markets is lower due to poor infrastructure and language barrier as digital media is largely English centric.

HINDI SEGMENT

While the M&E industry continues to grow at a strong pace, proper regulation to ensure plurality and diversity of views has been found lacking. With increased commercialisation and entry of multinational media corporations in Indian media, cross media ownership has been a tricky subject that the industry has failed to address.

Broadcasting companies owning television channels are venturing into distribution segments of cable television, Direct-to-Home (DTH), Headend-in-the-Sky (HITS) and Internet Protocol Television (IPTV) while distribution segment companies are entering into television broadcasting, sparking fears of content monopoly and market power.

Companies like Bennett, Coleman & Co Ltd and Anil Dhirubhai Ambani Group, among others, have a significant presence in print, TV and FM radio while Sun TV and Essel Group have interests in print, TV, FM as well as distribution platforms like Direct-To-Home (DTH) and MSOs.

CORPORATE GROUPS PRESENCE

 

An Administrative Staff College of India (ASCI) report in 2009 recommended that cross media ownership rules for broadcasting, print and new media must be put in place since there is ample evidence of market dominance in certain relevant markets.

Also, political parties, either directly or indirectly control newspapers, TV channels and cable TV distribution. Such players may selectively stream content to suit the needs of their political masters and also suppress competition in the market, depriving consumers of unbiased information.

Tamil Nadu is a prime example of this where political parties of all hues own news channels and thus control the flow of information.

The growing clout of Ambanis and other corporates have raised concerns that they can influence policy making to promote their vested interests while generating business revenues for themselves.

GLOBAL RULES

 

Lack of regulation has given rise to the culture of paid news, corporate and political lobbying, biased opinions and sensationalism in reporting, especially in entities with business and political interests.

The government should limit the number of licenses held by a single entity, restrict ownership across media and telecom companies. The key is to ensuring a high level of plurality of news and views while providing freedom to companies to expand and innovate.

Time to put a roof on property prices

Despite the Indian economy plunging into a downward spiral with most sectors under stress and asset prices taking a knock, real estate prices have remained rock solid with hardly any signs of slowing down. Defying gravity, prices just keep going up. The Reserve Bank of India (RBI) in its Financial Stability Report for June, has also flagged rising house prices in most metros as a deep concern. This is despite its hawkish monetary policy stance. Also, bank credit to housing, has fallen, but developers are in no mood to relent and cut prices.

house price index

The share of credit to the housing sector fell to 9.5 per cent as at end March 2013 from 13.3 per cent at end April 2007. However, the latest report of Knight Frank India reveals that Mumbai continues to be the most expensive property market in India, with 29% of the city’s total under-construction units priced above Rs 1 crore, compared with 11% in the national capital region (NCR) and 5% in Bangalore.

India is among the few countries where property prices have actually risen after the recession of 2008 while major economies such as the US, UK and even China have seen an absolute reduction in property prices.

BANK LOANS

This explosive growth in housing prices despite the gloomy macro-economic scenario is fuelled by key factors like severe scarcity of low-cost housing and rising disposable income leading to high-income people cornering bulk of the housing supply in upcoming and central locations. Lack of affordable housing and the paucity of innovative financing schemes for housing have also led to profileration of urban slums.

URBAN HOUSING SHORTAGE

In that case, are housing prices beyond fundamentals?

Despite falling sales, leveraged balance sheets and high interest rates, developers have been able to resist price cuts. Deepak Parekh, an industry veteran and someone who knows about housing better than many of our policymakers, believes that home prices are highly inflated in the country, including in smaller cities. He adds that increasing supply is the only way to bring home prices down.

Last year, Finance Minister P Chidambaram had also asked banks to pressurise builders to lower prices of apartments that are ready for possession but not getting sold. Developers are sitting on high inventories despite rising costs.
There is little justification for property prices to be among the world’s highest when infrastructure facilities are pathetic.

As per an estimation of the Task Force on Housing Requirements in Urban Areas during the Twelfth Five Year Plan Period (2012-17), the housing requirement in urban areas is 18.7 million units of which 18.5 million are for the Economically Weaker Section (EWS) and Lower Income Group (LIG) segment. As per a McKinsey Report, the demand for affordable housing will be 38 million by 2030.

Amidst such robust demand, there is a pressing need to put in place a fair and transparent market place. It is for this reason that the Real Estate (Regulation and Development) Bill 2013, approved by the Cabinet that allows for the creation of a regulator in the real estate sector had been keenly awaited.

Rise in Housing Prices

The Bill will ensure that construction is not only completed in a time-bound manner but that the buyer gets the property as per the specifications promised. Developers also need to clearly mention the approvals they have obtained and cannot sell homes unless the necessary approvals are in place. This would ensure greater transparency in project marketing and execution. However, the bill is silent on fixing prices. If price control measures are not introduced, the property market would continue to be at the mercy of speculators and cartels.

The steep housing prices clearly mirrors the country’s wealth imbalance. The centre should step in to address this imbalance by stifling price growth and encourage affordable housing.

While changing urban landscape has also contributed to higher housing prices, the main factor has been the high circulation of black money. The cash component involved in all transactions, up to 30% in some cases, is forcing the emerging middle class from buying a house.

When you have the drug regulator fixing prices of essential medicines to keep it within the reach of the common man and if stock markets can have circuit filters to regulate stock prices, why not have a price control in place for the realty sector that has linkages to more than 250 sub-sectors of the economy?

 

Gas pricing: Get govt out of the way

The contentious issue of gas pricing has evoked strong reactions from all quarters. Not wanting to be left out, everybody is jumping into the fray with his gyan on gas prices, either by dishing out their pricing formula or leveling allegations of scam, favoritism and so on.

Sample this: the Petroleum Ministry, Finance Ministry, Power and Fertilizer Ministries, political parties like Communist Party of India, BJP, Left, explorers like RIL, ONGC, GAIL, Cairn India, Oil India and experts like the Rangarajan Committee, the Vijay Kelkar committee, etc, have all been making statements in recent months about gas prices.

 

GAS PRICES AND COMPANY

 

 

The Rangarajan Committee on production sharing contract has arrived at a price of $8.80/mmBtu for gas from the current $4.2/mmbtu. The panel recommended the 12-month average of US’s Henry Hub, UK’s National Balancing Point and Japan’s liquefied natural gas price along with the average of the price of India’s LNG imports for arriving at the domestic price.

In line with Rangarajan Committee’s recommendations, Mukesh Ambani-led RIL and his partner UK’s BP Plc have also favored linking of domestic gas prices with international prices, seeking prices of around $12.5/mmbtu.

But the Power ministry has opposed the near doubling of gas prices saying it will raise the costs for power plants by over Rs 46,000 crore per annum.

 

GAS AVAILABILITY

 

 

The Finance Ministry has also rejected the formula and, instead, wants the panel to taken into account wellhead prices prevalent in Qatar, Oman, Abu Dhabi and Malaysia.

Sensing the backlash that was brewing over Rangarajan panel’s report, the oil ministry, recently, moved a cabinet note recommending a price of $6.8/mmBtu.

Amidst all this hoopla surrounding the pricing of gas, a key factor to consider is: why should the government be involved in fixing gas prices or for that matter any fuel?

Prices of fuels like gas and coal should be determined by the market based on demand-supply, taxes prevalent in states and levies on imports and exports, rate of inflation, availability of alternate fuels, etc.

 

RLNG INDIA

 

On pricing rationale, linking domestically produced gas with international prices makes little sense. While offering adequate incentives for producers in developing gas fields is a priority for recovering investment and a reasonable rate of return, using global prices as a benchmark for arriving at a cost for producing gas in India would be tantamount to exploiting consumers to benefit explorers.

From an economic standpoint, why should lawmakers be fixing prices? Let the explorer and industrial consumers negotiate the prices themselves, sign up long-term agreements for gas supplies? Let the buyers decide for themselves whether the price suits them or not.

As long as the gas pricing mechanism is controlled by the government, explorers like RIL and Cairn India will have no desire to produce more, forcing the economy to rely on coal and oil, both of which are neither eco-friendly nor available cheaply.

 

GAS DEMAND

 

Market-linked price also results in increased government share apart from eliminating unwanted consumption. Some analysts have also called for price discovery through a competitive, transparent bidding process by the contractors wherein all spectrum of buyers of natural gas participate in the process.

Taking about alternatives, the emergence of shale gas has been billed as a game changer. In the US, gas prices are at record lows as a surge in shale gas production coupled with lower demand has led to oversupply and record high gas inventories. The average price of gas at the Henry Hub has reduced from US$8.8 per mmbtu in 2008 to around US$2.9 per mmbtu in July 2012.

 

shale gas reserves

 

In India, shale gas formations are spread over several sedimentary basins such as Cambay, Gondwana, Krishna-Godawari on-land and the Cauvery. By initiating steps to identify prospective areas for exploration, shale gas can emerge as an important new source of energy and also pave the way for lower gas prices.

The country’s dream of energy security may turn into a reality only if its policies are aligned to meet the challenges facing all its stakeholders including the end consumer. But as it stands, everybody is allowed to have an opinion except the market.

 
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Time to get cracking on chit funds

Does money grow on trees? Yes, it does. That is what my parents thought when they invested Rs 600 in my name in a collective investment scheme floated by Esskayjay Plantations Ltd in August 1992. With its slogan “Money does grow on trees”, the company promised that “Rs 600 will grow over Rs 1,00,000 on tree in just 20 years”.

Fast forward to 2013, when time came to reap the benefits of our investments, we realised that the company had gone bust.  Repeated queries at the company’s registered address in Kolkata yielded no response. Last heard about the dubious firm is that market regulator Sebi has initiated prosecution proceedings against Esskayjay Plantations Ltd and its promoters for violation of Sebi’s  (Collective Investments Scheme) Regulations, 1999.

chit funds

The plight of gullible depositors of Sharadha Group is not surprising as many of us have been victims of Ponzi schemes, chit funds, illegal multi-level marketing , etc. The modus operandi of all the schemes is different from each other. While debate is on whether Saradha Group’s schemes can be labelled under the chit fund category, the spotlight is back on chit funds.

Widely popular in hinterland, chit fund is a vehicle for savings and borrowings and provides easy credit to meet your urgent fund requirements like marriage, health, education expenses, etc.

While households dabble in chit funds mainly to save cash on a daily basis to meet future needs, small traders and businessmen are big players in the industry as it offers them access to easy finance apart from saving their excess cash.

REASONS for chit-funds

RBI defines chit funds as “when a company enters into an agreement with a specified number of subscribers that every one of them shall subscribe a certain sum in instalments over a definite period and that every one of such subscribers shall in turn, as determined by tender or in such manner as may be provided for in the arrangement, be entitled to the prize amount.”

To elaborate on the business model- assuming that 20 depositors agree to pool in an amount of Rs 2,000 for 20 months i.e. for a total chit value of Rs.40,000/-, each depositor will get his chit amount when his turn comes by draw of lot or by auction.

During auction every month, the chit amount is given to the bidder who bids for the highest amount, not exceeding the maximum limit.

The amount, foregone by the subscriber is distributed as dividend amongst all the subscribers in every draw, after deducting 5% commission to be paid to the company or agents. 40% is the maximum bid allowed and the duration of chit is normally between 12 months to 50 months.

CHIT FUNDS -VERSUS-BANKS

Suppose the winning bidder bids for Rs 25,000, he would get this amount and, the rest of the amount i.e. Rs. 15,000 is divided among the 20 depositors. This discount of Rs. 750 (i.e. 15000/20) is then returned back to each member. So the next month’s contribution would be Rs. 1250 (Rs. 2000- Rs. 750). The member winning the “prize money” must continue making payments each month but can no longer participate in the auction.

According to the All India Association of Chit Funds, there are about 10,000 Chit Funds registered in India with annual subscription of Rs 30,000 crore per annum and bulk of them operate in Tier II and Tier III towns. What explains this flourishing financial market that offers sky-high returns only to vanish?

Chit funds tapped into segments that banking channels thought was not lucrative. Lack of access to banking services and post office branches for investing their daily savings forced poor people to turn to their neighbourhood chit fund. Also, strong backing from local politicians, as evident in the Sharadha scam, allowed them to operate unhindered.

safety perception of chit funds

But it would be wrong to paint the entire chit fund industry as sham. Registered funds are regulated by the Chit Funds Act, 1982 under the control of state governments. Despite the industry’s history of scams and collapses, many genuine companies like Shriram Chits and others offer saving and borrowing options for the unbanked rural people and small businesses, thus furthering the cause of financial inclusion.

Since many chit funds have deeply penetrated into rural markets, only increased regulation can weed out fraudsters like Sharadha group. With state governments woefully ill-equipped to administer chit funds, it is time to bring chit-funds under the purview of Securities and Exchange Board of India (Sebi). On its part, the market watchdog needs to strengthen its monitoring mechanisms at the grassroot level to protect poor people from investment crooks.

 


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