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The Land Acquisition Bill is slated to be taken up for consideration and passing in the Lok Sabha today. The government had circulated an amendment list in the last session of Parliament. In a column in the Financial Express, MR Madhavan discusses the major features of the Land Acquisition Bill and the associated issues that Parliament may need to consider while deliberating on the Bill. Economic growth and job creation require efficient usage of land resources. It is important that a fair and transparent process for purchase and for acquisition of land is followed. For the purchase of land, a key concern is the authenticity of land titles, and the government has drafted a Land Titling Bill for this purpose. In the case of land acquisition, the following questions need to be addressed. What are the end-uses for which public interests will trump private property rights, and justify acquisition of land from a person who is not willing to part with it? What should be the process followed? Since there is no market mechanism of discovery of prices in these cases, how should compensation be computed? Is there a need to address non-land owners who may be displaced by the acquisition process? Does the acquisition process get completed in a reasonable amount of time, and is there finality to the acquisition? In sum, do both sides—the acquirer and the land owner—perceive the process to be fair? The current Bill addresses these questions in the following manner. It defines public purpose to include infrastructure projects (as defined by the finance ministry, with some exclusions); projects related to agriculture, agro-processing and cold storage; industrial corridors, mining activities, national investment and manufacturing zones; government administered or aided educational and research institutions; sports, healthcare, transport and space programmes. It also enables the government to include other infrastructural facilities to this list after tabling a notification in Parliament. The significant difference from the current Land Acquisition Act, 1894, is that land cannot be acquired for use by companies unless they satisfy any of the above end-uses. The Bill includes a requirement for consent of the land owners in some cases. If the land is acquired for use by a private company, 80% of land owners need to give consent. If it is for use by a public private partnership (PPP), 70% of the land owners have to agree to the acquisition. The rationale of having differential consent requirements based on ownership—including the lack of any such requirement if the land is for the use of the government or a public sector undertaking—is not clear. Why should a land owner, who is losing his land care, whether the intended project is to be executed by the government or a private company? The Bill specifies that the compensation will be computed in the following manner. Three factors are taken into account: the circle rate according to the Stamp Act; the average of the top 50% of sale deeds registered in the vicinity in the previous three years; the amount agreed upon, if any, in case of purchase by a private company or PPP. The higher of these three amounts is multiplied by a factor, which varies from 1 in urban areas to a number between 1 and 2 in rural areas, depending upon the distance from the urban centre. To this amount, the value of any fixed assets such as buildings, trees, irrigation channels etc is added. Finally, this figure is doubled (as solatium, i.e. compensation for the fact that the transaction was made with an unwilling seller). The justification given for the multiplier ranging from 1 to 2 is that many transactions are registered at a price significantly lower than the actual value in order to evade taxes—the moot question is whether such under-reporting is uniform across the country? The Bill states that all persons who are affected by the project should be rehabilitated and resettled (R&R). The R&R entitlements for each family includes a house, a one-time allowance, and choice of (a) employment for one person in the project, (b) one-time payment of R5 lakh, or (c) inflation adjusted annuity of R2,000 per month for 20 years. In addition, the resettlement areas should have infrastructure such as a school, post office, roads, drainage, drinking water, etc. The process has several steps. Every acquisition, regardless of size, needs a social impact assessment, which will be reviewed by an expert committee, and evaluated by the state government. Then a preliminary notification will be issued, land records will be updated, objections will be heard, rehabilitation and resettlement survey carried out, and a final declaration of acquisition issued. The owners can then claim compensation, the final award will be announced, and the possession of the land taken. The total time for this process can last up to 50 months. The big question is whether this time frame would hinder economic development and the viability of projects? The Bill provides for an Authority to adjudicate disputes related to measurement of land, compensation payable, R&R etc, with appeals to be heard by the High Court. There are several restrictions on the land acquired. The purpose for which land is acquired cannot be changed. If land is not used for five years, it would be transferred to a land bank or the original owners. Transfer of ownership needs prior permission, and in case of transfer in the first five years, 40% of capital gains have to be shared with the original owners. Recent cases of land acquisition have been followed by public protests, and the stalling of the acquisition. Whereas some of these may be driven by political agendas, the old Act was perceived to be unfair to land owners in several ways. The challenge for Parliament is to examine the new Bill and craft the law in such a way that it is fair (and perceived as such) to land owners, while making acquisition feasible and practical for projects that are required for economic development and other areas of public interest.
Over the last few days, the retail prices of petrol and diesel have touched an all-time high. In Delhi, petrol was selling at 74.6/litre on April 25, 2018, while diesel was at 66/litre.
Petroleum products are used as raw materials in various sectors and industries such as transport and petrochemicals. These products may also be used in factories to operate machinery or generators. Any fluctuation in the price of petrol and diesel impacts the production and transport costs of various items. When compared to other neighbouring countries, India has the highest prices for petrol and diesel.
Note: Prices as on April 1, 2018. Prices for India pertain to Delhi.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.
How is the price of petrol and diesel fixed?
Historically, the price of petrol and diesel in India was regulated, i.e. the government was involved in the deciding the retail price. The government deregulated the pricing of petrol in 2010 and diesel in 2014. This allowed oil marketing companies to determine the price of these products, and revise them every fortnight.
Starting June 16, 2017, prices for petrol and diesel are revised on a daily basis. This was done to with the idea that daily revision will reduce the volatility in retail prices, and protect the consumer against sharp fluctuations. The break-up of retail prices of petrol and diesel in Delhi on April 25, 2018 can be found below. As seen in the table, over 50% of the retail price of petrol comprises central and states taxes and the dealer’s commission. In case of diesel, this amount is close to 40%.
Table 1: Break-up of petrol and diesel prices in Delhi (on April 25, 2018)
Component |
Petrol |
Diesel |
||
Rs/litre | % of retail price | Rs/litre |
% of retail price |
|
Price Charged to Dealers | 35.7 | 48% | 38.4 | 58% |
Excise Duty (levied by centre) | 19.5 | 26% | 15.3 | 23% |
Dealer Commission | 3.6 | 5% | 2.5 | 4% |
VAT (levied by state) | 15.9 | 21% | 9.7 | 15% |
Retail Price | 74.6 | 100% | 65.9 | 100% |
Does India produce enough petroleum to support domestic consumption?
India imports 84% of the petroleum products consumed in the country. This implies that any change in the global prices of crude oil has a significant impact on the domestic price of petroleum products. In 2000-01, net import of petroleum products constituted 75% of the total consumption in the country. This increased to 95% in 2016-17. The figure below shows the amount of petroleum products consumed in the country, and the share of imports.
Note: Production is the difference between the total consumption in the country and the net imports.
Sources: Petroleum Planning and Analysis Cell; PRS.
What has been the global trend in crude oil prices? How has this impacted prices in India?
Over the last five years, the global price of crude oil (Indian basket) has come down from USD 110 in January 2013 to USD 64 in March 2018, having touched a low of USD 28 in January 2016.
While there has been a 42% drop in the price of global crude over this five-period, the retail price of petrol in India has increased by 8%. During this period, the retail price of diesel increased by 33%. The two figures below show the trend in prices of global crude oil and retail price of petrol and diesel in India, over the last five years.
How has the excise duty on petrol and diesel changed over the last few years?
Under the Constitution, the central government has the powers to tax the production of petroleum products, while states have the power to tax their sale. Petroleum has been kept outside the purview of the Goods and Services Tax (GST), till the GST Council decides.
Over the years, the central government has used taxes to prevent sharp fluctuations in the retail price of diesel and petrol. In the past, when global crude oil prices have increased, duties have been cut. Since 2014, as global crude oil prices declined, excise duties have been increased.
Sources: Petroleum Planning and Analysis Cell; PRS.
As a consequence of the increase in duties, the central government’s revenue from excise on petrol and diesel increased annually at a rate of 46% between 2013-14 and 2016-17. During the same period, the total sales tax collections of states (from petrol and diesel) increased annually by 9%. The figure below shows the trend in overall collections of the central and state governments from petroleum (including receipts from taxes, royalties, and dividends).
Notes: Data includes tax collections (from cesses, royalties, customs duty, central excise duty, state sales tax, octroi, and entry tax, among others), dividends paid to the government, and profit on oil exploration.
Data sources: Petroleum and Planning Analysis Cell; Central Board of Excise and Customs; Indian Oil Corporation Limited; PRS.