Restrictions on buying land are reportedly holding up projects worth $300 billion (file photo: BBC News)
The government followed up its insurance reform last week with another ordinance to ease land acquisition rules in sectors like power, housing and defence. The aim is to kick-start hundreds of billions of dollars in stalled projects, but investments are unlikely to flow in till the changes are confirmed by parliament.
Restrictions on buying land, under a law championed by the previous Congress administration, are reportedly holding up projects worth almost $300 billion. Several states had asked Prime Minister Narendra Modi to overhaul the law enacted last January.
Finance Minister Arun Jaitley announced on Monday that projects in defence, rural electrification, rural housing and industrial corridors would not need to seek the consent of 80 percent of the affected landowners as mandated. The changes will come into effect from January 1, 2015.
"Such projects are vital to national security and defence of India including preparation for defence and defence production," Jaitley said, justifying the government's decision.
These projects would also be exempt from holding a social impact study involving public hearings – procedures that could drag out the acquisition process for years. Compensation to landholders, however, will stay at four times the market price.
The finance minister pointed out that certain provisions in the earlier law prolonged the process of land acquisition, and “neither the farmer is able to get benefit nor is the project completed in time for the benefit of society at large.”
An ordinance is an emergency measure that has to be passed by the next parliamentary session. The NDA government has already resorted to using this three times in the past six months due to a lack of majority in the Rajya Sabha.
After the last parliament session was stalled by opposition parties, two ordinances were passed to let foreign firms raise their stakes in insurance ventures and to allow commercial mining of coal.
Parliament did not ratify the November ordinance on coal, forcing Modi to renew it to let the government auction coal mines and allow private companies to mine and sell coal.
According to Reuters, analysts believe that reform through ordinances has its risks.
"While ordinances can be reissued once they lapse, they may not be perceived as a stable solution by investors wanting secure property rights," HSBC Securities analysts wrote in a note. "We, however, believe it is an important step to signal the government is serious on reforms."
Jaitley meanwhile rejected opposition parties' criticism that such ordinances undermine the parliamentary system. "Governments must act with determination. The government must have the desire to implement its decisions," he pointed out.
Modi is also considering changes to the Mines and Minerals Development and Regulation Act to auction minerals like iron ore and bauxite. But the government has yet to take a decision on an ordinance for it, Jaitley said.