Land Policy in India has been a major topic of government policy discussions since the time prior to Independence. It has been one of the biggest hurdles for companies looking to invest in India. At Present, the foreign investors keen on settling up the factory in India requires acquiring land on their own. In many cases, it delays the process of manufacturing because the process of acquiring land involves negotiating with the small plot owners to part their holdings. Recently, The government amended its FDI policy and made it mandatory that investments from the countries that share a land border with India have to take prior approval. This step has been taken to curb the opportunistic takeovers of domestic firms. Places which are unused and which are available in the Special Economic Zone are being examined, so that a detailed scheme for attracting the foreign manufacturing unit can be finalized.
Major obstacles for the Foreign manufacturing companies-
As regards the land policy of India, the investors of the foreign manufacturing companies faces two major obstacles when established a manufacturing unit in India- a) Identifying the right people to deal with the concerning land and lack of title insurance b) Security of title to the land. These two problems are particularly true for the rural land in India. Foreign investors consider that land acquisition in India is a high-risk transaction for their manufacturing unit because there is no title insurance given to them for securing their financial interest in the immovable properties.
Title insurance is a new concept in India but other countries have been extensively using it in both the commercial and real estate transactions. The tile insurance means that the “owner would insure the property against past liens or encumbrances or conditions covenants and restrictions (CC & Rs) that could potentially cause the loss of title for the property owner”. This type of insurance is in effect until the time the property owner owns the property. Another issue that undermines the security of the title is the possibility of disputes. Foreign manufacturing unit holders mainly deals with three types of disputes. The first one is Border disputes another one is disputing regarding the locus standi of land representatives and the last one is disputes involving the substantive rights of the foreign investors.
Land Policy and Reform –
Customary law regulated the land tenure and related policies during the pre-independence era. But the major development happened after the economic liberalization of the 1990s. The LPG (Liberalization, Privatization, and Globalization) resulted in attracting so many foreign investors in India. Since the liberalization of the FDI policies, the retail sector of India went into gigantic transformation. In 2013, the market value of the Indian retail sector was 500 billion USD. But nothing substantial has changed in the manufacturing sector. Major factors constraining the growth of Indian manufacturing sectors are poor infrastructure compared to China and other developed countries, lethargic bureaucracy, higher taxes, an agonizing land acquisition process, and labor issues. The land policies of India also dwell upon the improvement of core infrastructure, creation of a financial and institutional mechanism for technology development, and giving some relaxations to foreign units for establishing their companies in India. But, there is a need to ponder upon the hindrances which many foreign manufacturing companies face in India. Few of them are –
- Poor Core infrastructure – India has a poor core infrastructure when compared to China and other manufacturing hubs of the World. India lags behind allocating timely permissions and making an easy and friendly procedure for foreign companies.
- Bureaucracy – Foreign companies find it really hard to deal with the Indian bureaucracy. They also have to deal with higher taxes.
- Non- friendly land policy – India’s land policy for foreign companies is not very favorable. As mentioned earlier they are not getting many security provisions which they get in other nations. One example can be of Title insurance and easy tax policies. Foreign manufacture finds it really difficult to get convinced of the security of their property in India. But recently, National Manufacturing Policy(NPA) has tried to make this process easy for foreign investments – Creation of National Investment and Manufacturing Zones(NIMZs), Development of the core-infrastructure, Rationalisation, and simplification of manufacturing units.
It can be said that the majority of the land policy is not very favorable for foreign manufacturing investors. The land policy has been formulated keeping in mind existing initiatives such as Foreign Direct Investment (FDI), Good & Services Tax (GST), Land Acquisition Acts, etc., So, this co-ordinate implementation of the policy along with the National Manufacturing Policy may result into the easy setting-up process of Foreign manufacturing unit in India.
Future of Land Policy and its effect on FDI and Foreign manufacturing Unit –
The ongoing pandemic will change the dimensions of FDI completely. China has been blamed for the ongoing pandemic and its title of manufacturing hub is getting questioned time and again. The investors don’t want to risk their investments. Recently, India offered land to foreign investors who want to reduce their reliance on China. India is making prior approval mandatory for all foreign investors from the neighboring countries. Meanwhile, India is also emerging as a strong alternative to China for foreign companies invested in manufacturing and sourcing. The FDI policy is already getting tightened to prevent any opportunistic takeovers and acquisition of Indian Companies. The manufacturing is at a standstill and India’s Land policy can play a vital role in securing more foreign manufacturing units in India. The land policy in India can not be said to be a boon for foreign manufacturing companies in India. If it was a boon, then there would have been a remarkable presence of these foreign manufacturing companies in India. This pandemic can play a vital role by changing land policy to make India a suitable place for foreign investments. But recently, Government announced a self-reliance strategy which can again hamper the decision of foreign manufacturing companies which were planning to set up their manufacturing units in India.
 Masharu, U., Nasir, M.A. Policy of foreign direct investment liberalisation in India: implications for retail sector. Int Rev Econ 65, 465–487 (2018). https://doi.org/10.1007/s12232-018-0306-y