Land Acquisition, Labour Reform and a Mobile Workforce: Modi’s Grand Plan

9 June 2020 Dr Auriol Weigold, FDI Senior Visiting Fellow Download PDF

Key Points

  • Prime Minister Modi has promised “bold reforms” to create a self-reliant India, engaged in attracting international investment and a bigger role in the global supply chain, all announced with his Covid-19 stimulus package.
  • The aim to reignite India’s economic liberalisation commenced with the abolition of Nehru’s Five-Year Plans, which strategy was replaced by NITI Aayog, the National Institution for Transforming India.
  • Rules around Foreign Direct Investment have been changed, land acquisition simplified as a result of the Modi Government benefitting from Supreme Court rulings, and labour laws are now under review.
  • Migrant workers from India’s major cities, moved towards their regional and rural home areas by special workers trains, may arguably form the core of Modi’s “Make in India” election undertaking.

Summary

In a television address on 12 May 2020, Prime Minister Narendra Modi called, among other memorable phrases, for a “quantum jump” for the economy, that Indians should be “vocal for local”, and promised bold reforms to create a self-reliant India. According to the PM, ‘today it is the need of the hour that India should play a big role in the global supply chain.’

This paper discusses the proposed reforms: simplifying the rules around the acquisition of land, reforming unmanageable central and state labour laws, and utilising migrant workers returning to their homes, initially on foot and more recently on Shramik Special trains for workers, to fill the expected surge in work, created as the Finance Minister’s expansive announcements on development projects become operable.

Set in a Covid-19 economic new-start frame with new investment players, the achievement of an investor-friendly environment may, nonetheless, be a lengthy process. Upskilling workers in the process could, at some stage, achieve a Modi aim since his election in 2014, his “Make in India” programme. A question remains, are any of the Finance Minister’s investment sectors “shovel ready” with the necessary legislative changes in progress?

Analysis

New Setting

The Finance Minister (FM), Nirmala Sitharaman, on 16 May fleshed out the PM’s broad picture, announcing much-needed structural reforms and steps to attract new investment across eight important sectors of India’s economy. The aim: to reignite India’s earlier economic liberalism, and move India’s economy forwards towards the ambitious target set out in Prime Minister Modi’s 2019 Election Manifesto. New strategies or methodologies are in place that may facilitate implementation of some aspects of the proposed reforms.

Prime Minister Nehru’s Five-Year Plans (the centralised planning system that he borrowed from the Soviet Union), for example, came to an end in 2017, and was replaced by the National Institution for Transforming India (NITI Aayog). The NITI Aayog replaced the Nehru Planning Commission and has no powers to grant funds or make decisions for states. It is an advisory body that proposes policy direction and, under its first five-year strategy, has recommended that the Central Government take steps to raise investment rates and work with state governments to rationalise land acquisition and labour regulations. Potentially, such policy advice, if followed, would ease the way for overseas investment in India, enabling Modi’s “quantum jump”.

Accompanying the NITI Aayog, new limits to Foreign Direct Investment (FDI) that appear restrictive, even negative, have a particular purpose.

FDI’s automatic approval route, limited only in some sectors, has been the monetary source for Indian economic development, allowing foreign companies to invest in India and benefit from its low wages. Policy has recently been amended, however, by the Commerce and Industry Ministry to limit “opportunistic takeovers or acquisitions of Indian companies due to the Covid-19 pandemic”. The terms are opaque, but prior Government of India approval will now be required for investment by a company or potential investor which is headquartered in a country sharing a land border with India. What is noteworthy is that this restriction applies only to countries “bordering India”, the target clearly being China, rather than other neighbouring investors, namely Bangladesh, Nepal, Myanmar and Afghanistan.

India’s other limiting factor, the November 2019 withdrawal from the Regional Comprehensive Economic Partnership (RCEP), Asia’s commitment to free trade with sixteen prospective signatories, including China, had been unexpected and not welcome regionally, but remains in place. India’s argument was that RCEP did not provide it with adequate protection against surges in imports – targeting China with which India has a massive trade deficit.

Modi’s 2019 Election Manifesto focused on domestic policy except to note under the “Make in India” heading, that to bring fast and inclusive growth, aimed at improving the process of doing business, the Government has ‘carried out substantial reforms’. Referring to FDI, the Manifesto points to more than 90 per cent of FDI approvals are automatic, while FDI has grown by close to 50 per cent in the period of his first government (2019 Manifesto, S. 7, p. 18).

Poised for a self-reliant and globally-engaged future, the Manifesto also notes (S. 8, p. 18) that, in the top fifty ranking in the World Bank’s Ease of Doing Business Index, India climbed sixty-five places. The OECD Economic Survey for India, of December 2019, provides a detailed overview of India’s progress.

A Policy Note, ‘Reforming Supply of Industrial Land in India’, a Report prepared with World Bank technical assistance to the Government of India’s then Department of Industrial Policy and Promotion, published in June 2010 and discussed below, provides pertinent input.

Bilateral Re-start in a Covid-19 Setting

Within India’s “new-start” Covid-19 economic setting this year, and the subject of a forthcoming study, Prime Ministers Modi and Australian’s Scott Morrison held the first ‘India-Australia Virtual Summit’ on 4 June. It was Modi’s first virtual summit with a foreign leader and his first “face-to-face” leaders’ discussion, albeit at a distance, since early this year. Modi had postponed visits to Dhaka in March and Moscow in May, while Morrison cancelled his January visit to New Delhi and his role as guest speaker at the Raisina Conference at the time of the bushfire emergency in Australia, and his subsequent planned visit due to the Covid-19 pandemic.

On 4 June, they notionally signed seven agreements, among them a strong focus on military assets and facilities access for ships, deepened defence ties generally, upgraded Strategic Partnership adding the word “Comprehensive” (CSP), reiterated their shared support for the rules based maritime order, reiterated their commitment to the Pacific Island nations, and re-stated the values of democracy.

In November 2018, during their discussions in Sydney, Mr Morrison and Indian President Ram Nath Kovind agreed to five courses of action that they saw as achievable. Those actions were drawn from the report by Peter Varghese, An Indian Economic Strategy to 2035, which was published in April 2018, from undertakings identified by both Australian Foreign Minister Christopher Pyne in November that year and by Marise Payne at the Raisina Dialogue in New Delhi in January 2019. Further study of the agreements that have now been signed by Morrison and Modi will indicate if those discussions and undertakings will find a place in them. The Regional Comprehensive Economic Partnership (RCEP) and the India-Australia Comprehensive Economic Partnership Agreement were re-raised.

There was no discussion of China during the virtual conference, nor was there of the thorny issues of quadrilateral maritime exercises that would include Australia, India, Japan and the United States, or the question of Australia’s inclusion in India’s Malabar naval exercise.

Modi indicated that the CSP (that India has similarly signed with other states), took on ‘new meaning’ at this time, and that:

‘[the] World needs a coordinated and collaborative approach to come out of … this pandemic. Our Government has decided to view this crisis as an opportunity.’

Can this mutual aim overcome the on-again off-again nature of the Indo-Australian bilateral relationship and take it to solid ground?

New Directions – Land Acquisition

Expanding the PM’s broad-brush “New Settings” picture, endorsed by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), the FM listed a focus on eight sectors: coal, minerals, defence production, air space management and airports, maintenance, repair and overhaul industries (MROs) that provide services like airframe maintenance, line, component and engine maintenance, power distribution companies, space and atomic energy.

This massive plan appears to carry a burdensome raft of legislative change including land acquisition across states, taxation incentives, relaxed labour laws and a vast workforce.

Land acquisition, however, has a number of aspects and one is the take-over of privately-owned land by the Central or State Governments for government projects. The landowner does not have a choice when the land to be acquired is for public-private projects and private projects that serve a “public purpose”. Public purpose includes several of the FM’s listed sectors, and the 2013 Act, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, passed in January 2014 before Modi was elected, required compensation of twice the price of land for urban areas, and two to four times the rural land price. Another land acquisition proviso required the consent of 80 per cent of landowners when the land is acquired for private projects, and the consent of 70 per cent of owners when the land is for public-private projects.

In March 2015, less than a year into Modi’s first government, a Bill to amend the 2013 Act, ‘Land Acquisition: An Overview of Proposed Amendments to the Law’, removed the requirement of obtaining the consent of a percentage of landowners in categories of land use; again, close to the FM’s list of eight sectors. A change of terminology from ‘private company’ to ‘private entity’ in terms of a ‘public purpose’, implied (also here) that land may now be acquired for a proprietorship, partnership, corporation, non-profit organisation, or other entity, in addition to a private company if the project serves a public purpose.

While the above Bill appears to be mired in opposition, and an outcome not clear, the Supreme Court in early March 2020 found that land acquisition proceedings would not lapse as long as the government had ‘tendered’ the compensation, apparently returning to the 2013 Act provisions. However, in a let-out (or pro-government clause), the Supreme Court also said that ‘land-owners who refuse to accept the compensation cannot press for cancellation of acquisition’.

Interestingly, the Supreme Court also ruled at that time that the process of land acquisition would be ‘flawed in the absence of [an] actual receipt of compensation’, noting that even though a right to property is no more a fundamental right, it still remains a constitutional right. Thus, speculatively, the Supreme Court ruling allows the FM to proceed with land acquisition – a way forward while the contentious 2015 Bill’s amendments remain on the table.

This way forward is substantiated by an overarching power given to the Supreme Court under Article 142(1) of the Constitution), concerning the ‘Enforcement of decrees and orders of Supreme Court …’ and states that ‘The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause of matter pending before it, and any decree so passed or order so made shall be enforceable throughout the territory of India .…’

It would seem, thus, that anticipated barriers to making land available for Indian or international industrial development (with the caveats for states bordering India) may be less of a roadblock than anticipated. The India Brand Equity Foundation ‘expects the country to become the fifth-largest manufacturing country in the world by the end of year 2020’, while the government aims to achieve 25 per cent GDP share and 100 million new jobs in the sector by 2022.

In parenthesis – a Policy Note ‘Reforming Supply of Industrial Land in India’, June 2010, argued that land banks could be created ‘to cater primarily to demands for land from private investors needing standalone large tracts of land’ for proposed large industrial projects. A further question emerges – could a “land banks” system, arguably allowable under the Supreme Court’s land acquisition rulings, find a place in the Modi Government’s toolkit?[1]

New Directions – Labour Laws

Among a range of countries that have taken up investment opportunities in India before or during 2019 are Britain, Canada, France, Japan, Mauritius, Netherlands and the USA. While the Australian Government recognises the opportunities for investment in India, the Department of Foreign Affairs and Trade’s ‘The Investment Story’ (2018) flags opportunities but notes that Australian investors will make their own decisions, acknowledging that direct investment in India is challenging. The Australian and Indian Prime Ministers’ virtual talk on 4 June opened up some new discussion as Australia moves to diversify its regional engagements.

The Indian Labour and Employment Minister, Santosh Kumar Gangwar, however, is working towards rationalising the present federal labour laws into four categories: wages, industrial relations, social security and welfare, and occupational safety including health and working conditions. Currently, there are some forty Central laws and over one hundred State laws. States may regulate labour by passing their own labour laws or by amending Central labour laws as applicable to that state. In cases where Central and State laws clash, Central laws will prevail, overriding State laws unless the State has sought and received the President’s assent. PRS Legislative Research has listed States that have passed the easing of their labour laws.

While clarification is difficult, regulations have been re-formulated to tackle the effects of Covid-19 across states with quick action that excludes the normal, often lengthy, consultation. Whether, and to what extent such new regulations may be overhauled in the future is not known, although Part III of the Constitution covers the individual rights of Indian citizens.

Arguably fuelling Modi’s “Make in India” (Mark II), India needs to create each month some one million jobs, and one way to “reap its so-called economic dividend … is by moving large numbers of workers … to the factory floor”.

The stimulation package, the announcement timed to begin amelioration of the Covid-19 shut-down of India’s economy, closely coincided with the commencement of the Shramik Special trains, running to transport migrant workers, who had set out to walk from the major cities to their home areas, where many may gain employment and training in the industries set up around the smaller cities or in rural or semi-rural areas. The Supreme Court’s land acquisition qualifications allow land to be rendered available, in response to the FM’s expansionist call.

As Modi said, with some poetic licence, ‘Our vibrant demography is walking down the highway’.

Shramik Special trains for workers started on 1 May after the Central Home Ministry asked all states and territories to accommodate the extra trains to return migrant workers, stranded across the country after the Covid-19 lockdown was imposed on 25 March. On 11 May, Indian Railways approved an increase in the number of passengers allowed onboard, and the number of stops made en-route to their destinations. The Shramik Special trains have 24 coaches with 72 seats each and, with some relaxation of social distancing, each train carries up to 1,700 people and may make three stops.

While Indian Railways were prepared to run 300 trains a day, the Central Government has decided on up to 100 trains daily, claiming that over 600,000 migrants had reached destinations since their introduction.

Concluding Proposition

The Prime Minister’s mid-May 20 lakh crore rupee (approx. $400 billion) stimulus package is being dispensed by FM Sitharaman to a range of businesses that include food enterprises and engaging in farm-gate infrastructure, which may, arguably, be “shovel ready” for the flow of displaced workers. While Modi’s stimulus package promised a future self-reliant India, the building blocks were in place. Overseas development industries have started, land acquisition under the Supreme Court’s ruling is becoming less onerous, and labour laws are under reform.

While there is no “official” connection, the current dispensing of funds to rural enterprises and the increased running of Shramik Special trains may, arguably, be a step on the way to moving a migrant workforce from India’s major cities towards the anticipated land-based industry growth in coal, minerals, defence production, air space management and airports, maintenance, repair and overhaul industries (MROs) that provide services like airframe maintenance, power distribution companies, space and atomic energy. Foreign investment has generally benefitted; NITI Aayog and a local workforce may bring reality to Modi’s ambition to “Make in India”.

 

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[1] Further to Note on land banks: Such land could be substantial in area. ‘For example, Gujarat, as per estimates of the Industrial Extension Bureau, has legacy land of 360 mn. sq. m. Further, Gujarat Industrial Development Corporation (GIDC) has purchased and/or acquired another 299 mn. sq. m. So far, GIDC has developed 180 industrial estates on the land available with it. It proposes to acquire another 500 mn. sq. m in the future to accommodate an additional 60 industrial estates. Gujarat has ambitious plans to assemble around 1,600 mn. sq. m of land in the form of industrial estates and Special Investment Regions by the year 2020’. Modi was Chief Minister when the Policy Note was written in 2010.

About the Author

Dr Auriol Weigold is an Adjunct Associate Professor in the Faculty of Business, Government and Law at the University of Canberra. She has been a Fellow and Honorary Fellow at the Australian Prime Ministers Centre at Old Parliament House, Canberra, between 2010 and 2015, publishing on Australian and Indian prime ministerial relationships. In 2016, she spent a period as a Guest Scholar at the Indian Institute of Advanced Studies at Shimla. Previously, she was Convenor of the BA International Studies at the University of Canberra, an Editor in the Faculty of Arts and Design and for the University of Canberra’s Personal History Project, and has been an Editor of the South Asia Masala weblog, hosted by the College of Asia and the Pacific at the Australian National University. In 2008, she published her first book: Churchill, Roosevelt and India: Propaganda during World War II. Since then, she has co-edited and contributed to two further books. Her research interests include the Australia-India bilateral relationship, India’s energy and security needs, and Indo-British relations in the 1940s.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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