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RDM proposes more equitable deal for landowners; realtors may have to share 80% profits by Devika Banerji & Ravi Teja Sharma

The rural development ministry has proposed that farmers should get 80% of the profits from resale of land bought from them for development, much higher than that suggested by a Sonia Gandhi-led panel.

The National Advisory Council had pegged the compensation after resale at 25% of the profits made by private developers. The proposal, aimed atgiving farmland owners a better deal, follows protests in Uttar Pradesh's Greater Noida last month over land acquisition.

"The ministry of rural development has proposed introduction of this clause in the Land Acquisition (Amendment) Bill," a rural development ministry official told ET. The proposed profit-share will be calculated after the developer has deducted development costs and taxes.

However, developers say the idea is not viable. The UP protests were thelatest in a series of agitations across the country over acquisition ofland for industry, which have held up billions of dollars in investments and forced several developers to scale down plans for special economic zones.

The matter has added urgency to the government's plan to introduce more farmer-friendly clauses in the Land Acquisition Amendment Bill and Resettlement and Rehabilitation Bill. "One of the major reasons for the resentment among farmers is that without development, their lands are oflow value, and after it the value of the land increases manifold," a ministry official said.

"We believe this is not right and they should partake majority of the benefits that private developers make by transferring the land," the official added. The clause, however, might not go down well with industry, though it is not opposed to sharing its profits from resale ofdeveloped land with its original owner. "It is not a viable propositionfor any developer. We will book losses if this happens.

As a developer, we take all the risk of the development including getting permissions and selling. We would rather get into the contracting business where profits will be better," says Shiv Priya, executive director at Amrapali Group.

Industry body Federation of Indian Chambers of Commerce and Industry (Ficci) too does not favour such a high limit. "An 80% might be too high... but as a principle, some amount of the profit should be shared. Icannot comment on the exact percentage, but companies should share the profits," said Ficci Additional Director Chetan Bijesure. Experts say these proposals do not address the real issue. "These are half-baked solutions in the prevailing scenario because companies can manipulate their profit making the step useless," said Mukul Rohatgi, senior advocate and former additional solicitor-general of India.

Industry supports Haryana model

In the case of initial compensation for land acquisition, the ministry has proposed a one-time payment and a 30-year annuity payment to farmersto ensure continuous income support. The ministry's proposed annuity model is in line with that adopted by the Haryana government.

Industry too has supported this model of compensation. "The government can consider adopting the Haryana model of compensation, which provides for payment of annuity in the form of royalty for a period of 33 years for people whose land is acquired," Ficci said.

The ministry is also keen the bill provides landowners the option to split compensation between cash and debentures or shares. Under the existing act, a company can pay part of the compensation through its shares and debentures. They can issue shares and debentures to an upper limit of 50%, but not less than 20%.

"Farmers should have the choice on how much they want as shares or debentures. Most will want cash and that should be incorporated in the Act," the official said.

The NAC has proposed that minimum 5% shares should be distributed equally to displaced landowners free of cost, over and above the core compensation package. The ministry has, however, opposed the NAC's recommendation to integrate the land acquisition and resettlement and rehabilitation bills. "We would prefer that we have two separate bills at the current stage," the official said.