The Adani Group is said to be close to the Modi government in Gujarat. With allegations flying thick and fast, here are some facts to guide the discussion

Earlier this month, Forbes Asia published a report hinting at alleged crony capitalism practised by Gujarat Chief Minister (and BJP’s prime ministerial candidate) Narendra Modi. That it received wide publicity was obvious given that Modi and his governance model are the central focus in the upcoming 2014 Lok Sabha elections.

Indeed, if Modi is staking a claim to ask India’s vast electorate to vote for him and his party this summer on the basis of his governance record, strict scrutiny on that record is obvious and must be welcomed.

However, the report scrutinising his record contains factual inaccuracies and half-truths. Among other things, the report claims that the Gujarat government gave the land seized from the village to Adani for a song - and that the Gujarat high court ordered the state to give the villagers alternate land for grazing. The facts, however, are quite different.

On the Gujarat HC “ordering” Gujarat government and Adani

To buttress one of the themes of the report, ie, that Adani Group has been the recipient of the Modi government’s generosity, it talks about a case filed in the Gujarat High Court by village residents of Zarpara, a village in Kutch where the Mundra port has been set up, when gauchar (grazing) land was allotted to the Adani Group by the government of Gujarat (GoG). The report says, “the court in the summer of 2011 ordered the government and Adani to replace that land for the villagers but nothing has happened so far.”

The fact is that the high court never ordered GoG or Adani to replace that land. In fact, the petition filed by residents was not even aimed at requesting the court to issue any such order. The court merely recommended (not “ordered”) GoG to examine whether an equivalent area out of wasteland available with GoG could be allotted to the village.

Check this excerpt from the Gujarat HC judgment dated 22.06.2011. The case number is SCA 7254/2008

The reason this is vital to point this out is to correct a likely impression readers may gather that GoG ignored the high court’s order for Adani’s benefit. Not only did the Gujarat High Court reject this challenge by the residents, even the Supreme Court rejected an appeal preferred by the residents via an order dated 30 October 2012 [SLP (Civil) 26888/2011].

Surprisingly, the Forbes report did not deem it necessary to mention that.

Law and policy regarding grazing land

It is useful to understand the totality of the law and GoG policy pertaining to allotment of grazing land, particularly in view of what the Forbes report states. The relevant points that emerge from a combined reading of Section 108 of the Gujarat Panchayat Act, 1993 (GPA), GoG resolutions (one, dated 30 December 1988 and another dated 27 January 1999) and the Supreme Court’s pronouncements are as under:

The grazing land allotted to Adani Group in Zarpara village is one which was originally land belonging to GoG vested by it in the village panchayat for grazing use. Therefore, if that grazing land has to be allotted, Section 108(4) of GPA makes it lawful for GoG to ‘resume’ such land (ie, take it back) at any time, if required, for a public purpose.

Notably, the Supreme Court has held that the setting up of a Special Economic Zone is “public purpose” since it benefits not only the village and adjoining areas but even the state and the country in terms of the business opportunities it generates [Shah Kantilal Depar v RIL, 2006].

Further, the Supreme Court has clearly held that, if the land in question is one covered by Section 108(4) of the GPA, it is not obligatory for the state government to obtain consent of, or even consult, village residents or the panchayat. This is because the land in question belongs to the state government and is vested in the village panchayat with a legal understanding that the land can be resumed by the state government at any time [Panchayat Varga Shramjivi Samudaik Sahakari Khedut Co-op Society Ltd. vs Haribhai Mevabhai, 1996].

obligatory for the state government to obtain consent of, or even consult, village residents or the panchayat. This is because the land in question belongs to the state government and is vested in the village panchayat with a legal understanding that the land can be resumed by the state government at any time [Panchayat Varga Shramjivi Samudaik Sahakari Khedut Co-op Society Ltd. vs Haribhai Mevabhai, 1996]. The GoG resolution dated 30 December 1998 requires that a certain ratio (grazing land:cattle) be maintained as far as possible . That said, if GoG has to take over grazing land for a public purpose, it can do so in exceptional cases even if grazing land is not in excess. The resolution further states that, if there is opposition from local self-government bodies, then, as far as possible , the procedure for the resumption of such land should be avoided unless opposition is found to be baseless.

. That said, if GoG has to take over grazing land for a public purpose, it can do so in exceptional cases even if grazing land is not in excess. The resolution further states that, if there is opposition from local self-government bodies, then, , the procedure for the resumption of such land should be avoided unless opposition is found to be baseless. It is useful to note here that, though the resolution asks GoG to be mindful of opposition from local self-bodies, the high court and the Supreme Court have confirmed that these are just guidelines and the law does not mandate the government to hold consultations with the village panchayat in cases of land covered by s. 108(4) of GPA.

mandate the government to hold consultations with the village panchayat in cases of land covered by s. 108(4) of GPA. Yet, consent of village panchayat was voluntarily taken before allotting the grazing land at Zarpara village to Adani and the panchayat did give consent. Three years later, the newly elected panchayat did oppose the allotment, but the high court rejected that.

Further, under GoG resolution dated 27 January 1999, every time a business is allotted grazing land, the state government must collect 30 percent premium in addition to the price of the land. GoG must, if possible, allot similar area of land out of government wasteland to village panchayats for grazing. Notably, however, if such wasteland is not available, the 30 percent premium should be given to the village panchayat as compensation.

(This is one more reason why the Forbes report is wrong about the Gujarat HC “ordering” GoG and Adani to replace the land allotted with more land. It is not the only option. In fact, the required 30 percent premium was already collected by GoG from the Adani Group back in 2007 when the land was allotted. It was only a question of GoG handing over that premium to the village panchayat.)

To sum up, the law does not mandate that grazing land can be allotted only if it is in excess of the ratio nor does it mandate permission of the village chief. The Forbes report, however, rather confidently states that under the law grazing land can be used for something else only if it’s “in excess” and that, even then, the village chief has to give permission to take the land.

Not only is this exposition of the law utterly simplistic, it is also inaccurate.

Environmental clearance to Adani SEZ

The Forbes report also alludes to the lack of environmental clearance to the Adani SEZ (the ministry of environment and forests, MoEF) not having taken a decision for almost 18 months) and ends by stating that the fate of this project will likely be decided by the government in power next which could easily be a Modi-led government. Is this an insinuation that Modi, as PM, may easily grant clearance to his friend Adani? I will leave it to the readers.

At the outset, it must be stated that the Adani Group was ill-informed to commence construction in the SEZ without obtaining prior environmental clearance. That said, the Expert Appraisal Committee of the MoEF recommended environmental clearance to the SEZ way back in 2012 after which the MoEF is supposed to take a final call.

Notably, under Clause 8(iii) of the EIA (Environment Impact Assessment) Notification 2006, if the MoEF does not decide within 45 days of the EAC recommending grant of clearance, that recommendation is deemed to be the decision of MoEF. Therefore, legally, as of today, Adani Group has clearance for the SEZ.

What made the high court order a stay on further construction within the SEZ area is that construction had commenced prior to the deemed clearance, which made it unlawful. Deemed clearance only applied if construction was commenced after it was obtained. Therefore, the deemed clearance could not cure the illegality committed prior to obtaining it.

True, there continue to remain concerns about environmental violations by the group. A committee headed by Sunita Narain, constituted by MoEF, has recommended the imposition of penalties for violations, particularly around the North port area. But even the Narain committee recognises that large-scale development has been taken undertaken and it won’t be prudent to halt or cease operations in areas other than the North port.

Therefore, instead of obsessing over what Modi-led government will do, what’s truly condemnable is that the UPA Government (the MoEF) has been plagued with utter inaction. Worse, when the Gujarat high court was hearing this matter, it did not even bother to file a reply, as is evident from the insert below.

Check this excerpt from the judgment observing the inaction of MoEF

Due to this inaction, the Gujarat high court, in its judgment in January this year, ordered MoEF to take a decision within 30 days of the date of the judgment “without fail”. The UPA sat on the file and, soon after the 30-day period, the Model Code of Conduct was imposed.

This background is vital to understand the insinuation made in the Forbes report. If a Modi-led government takes a decision as per the Narain Committee recommendations, would that government do so because Adani is Modi’s buddy? Or, would it do so because the EAC has already recommended granting clearance, the Narain Committee does not recommend cancelling clearance for the entire SEZ and MoEF under UPA has been sitting on the file since 2012?

On land allotment rates

The Forbes report makes much of GoG’s “bent” towards big businesses by juxtaposing the rate at which Adani got land from the GoG and the rate at which it sublets to businesses. It also states that none of the other companies in Gujarat “have received the kind of largesse on land rates as Adani.”

First, the GoG policy for determining land rates for industrial purposes.

Under GoG resolution dated 15 January 1998 and other circulars, the process is as under:

1) Collector of the area typically receives application for allotment of government land. Collector informs Deputy Town Planner (DTP) of the location and condition of the land. The price of the land is determined at this initial level by the Collector's office.

2) The DTP visits the land and (i) takes cognisance of sales that took place in adjoining areas in the past five years; and (ii) conducts an assessment of the technical aspects and determines a price at this level. In a sense, this entails considering the market price at the relevant time.

3) If the price is below Rs 15 lakh, the collector has the authority to allot the land and prescribe conditions.

4) If price is above Rs 15 lakh, a file is put before a District Valuation Committee (DVC - consisting of Collector and two other officials) which evaluates the file and pricing at the aforementioned levels.

5) If the DVC values land at a price greater than Rs 50 lakh, the entire file is sent to the Revenue Department which, in turn, sends file to the Chief Town Planner who evaluates it and suggests increase/decrease in price, if any.

6) The file is then presented before the State Pricing Committee (SPC - consisting of higher level bureaucrats of the revenue department, Urban Development & Urban Housing Department and the Finance Department). If the SPC also determines the value of the land to be above Rs 50 lakh, the file is sent to the state cabinet for a final decision.

In fact, in one instance, although the SPC determined rates of two of the three locations where Adani applied for tracts of land as Rs 4.25 and Rs 6 per square metre, the Council of Ministers (the one headed by Modi) determined that the price of those tracts (rather large) would be Rs 25 per square metre since that was the rate the SPC arrived at for the third location.

(Disclosure: The author represented Gujarat Government in the Justice MB Shah Commission of Inquiry where these allegations and GoG resolutions were addressed threadbare.)

Instead of making sweeping statements that none of the other companies received the kind of largesse on land rates as Adani, it may be useful for Forbes to dig out actual examples where this procedure was not followed by GoG.

Lastly, it is useful to bear in mind that this wasn’t the case of the Adani Group getting land at rate x, sitting on it, doing no improvements and then leasing it to Y for a handsome profit (10x or 20x). Adani wasn’t merely flipping land. The group constructed a port which entails heavy capital expenditure and huge risks. Moreover, any study of the economic history of India will indicate how critical a port is for the development of that region and state.

Since Forbes highlights the profit Adani made by subleasing land to Indian Oil, let us take the example of why Indian Oil set up shop in Adani port at a high sublease price. Back in 2002, it was particularly attracted to setting up its business of handling crude oil at Mundra because of, among other things, the single point mooring (SPM) system Mundra port provided. That SPM system offers significant marine freight savings.

Adani Group offered to sublet at an amount based on what it estimated takers would be willing to pay. IOC could have refused to agree to those terms. In that case, Adani wouldn’t have got business from IOC. It isn’t as if there weren’t other ports in India where IOC couldn’t set up shop. Indeed, Adani port wouldn’t have got business from anyone if all found the subletting rates too high on a cost-benefit analysis. But, IOC freely made a business decision looking at what benefits it would get as a company. So do many other entities.

What happens when a state has a port with competitive facilities? Trade and business increases. Both GoG and government of India (GoI) earn several types of revenues in the form of taxes and charges even if it offers concessions on some of them. That revenue can give governments the cash cushion to spend on welfare programmes to bridge the gap even further. Yes, Adani earns too and he has every right to.

Has Forbes even bothered to see what revenues GoG and GoI have got from the entire business which is generated in Mundra? Juxtaposing two rates at separate times offering different things under different conditions is not right.

The purpose of this column is not to say that Modi and Adani are beyond criticism. Certainly not. But it seems that the author has not read the very court judgment quoted in the report or studied the law to support its criticism. The report is thus misleading.

This story was first published in Firstbiz