Social Impact Assessments in India: Red Tape or Good for Business?

September 2, 2015 Posted by India Briefing Reading Time: 6 minutes

By Dezan Shira & Associates
Editor: Kimberley Wright

Social impact assessments (SIAs) are an important part of the investment phase for many companies in India. Derived from the Environmental Impact Assessment model (EIA), which first originated in the 1970s as a way to evaluate the impact of infrastructural projects on communities, SIAs are now used by a number of countries like India in urban planning and development to assess the impact of projects on individuals and their communities.

Social Impact Assessments in India

Many countries use SIAs as a regulatory tool in planning developmental projects. In India, SIAs were mandated in 2013 by The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act. Prior to this law, land acquisition was controlled by the Land Acquisition Act of 1894, passed when India was still a colony. According to the 2013 land acquisition law, any major project is required to conduct an SIA within six months of the project’s start date.

The study must be publically displayed and available in the local language (beyond India’s two official languages, English and Hindi, there are many sub-national languages). For projects that involve land acquisitions, developers need to acquire consent for a majority of local landowners: consent from 80 percent of affected landowners is required for private projects, and consent from 70 percent is required for public-private partnership projects. After land acquisition, businesses are required to compensate the affected individuals with two times the land’s market rate for urban land and four times the rate for rural land.

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There were two important reasons behind the passing of the land acquisition law in 2013: to decrease social unrest over uncompensated land acquisition and to speed up the execution of development projects. A Planning Commission Report found that of 60 million people displaced from 1947-2007, less than one third received any compensation for their property loss, and 80 percent belonged to scheduled castes, scheduled tribes, and other vulnerable sections of society. Through mandating SIAs, the government sought to ensure that locals receive proper resettlement packages and that developers constructively engage with local communities.

However, while SIAs may benefit some landowners affected by land acquisition, some have blamed SIAs for slowing down development projects by drawing out the land redistribution process. Even after revisions to the land acquisition law in 2013, almost US $300 billion in development projects remain stalled, often due to bureaucracy and complications involving land acquisition.

On April 3, 2015, Prime Minister Narendra Modi bypassed parliament to issue an ordinance to ease the SIA requirement on companies that are involved in areas that are critical for the country’s development, such as: defense and defense production, rural infrastructure, industrial corridors, and social infrastructure projects such as Private Public Partnerships (PPPs). For projects within these areas, companies will no longer need to acquire consent through SIAs before development projects are approved, theoretically facilitating the development process.

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Conducting Social Impact Assessments

SIAs can be resource and time-intensive, which leads some business owners to view them as bureaucratic red tape. However, SIAs remain an important part of the investment process in India that cannot be overlooked.

In India, businesses and organizations are responsible for allocating the time and money in order to conduct the assessment, and there is a great degree of diversity among those who conduct SIAs and how much resources an organization devotes to the project. SIAs are typically conducted by social development professionals and organizations that specialize in research development. Some organizations will hire an external research institution, NGO, or consulting agency to conduct the study, while some larger corporations have their own internal team to conduct SIAs.

As part of a SIA, information is collected on the number of households affected by the development project and their detailed socioeconomic profile, such as their caste, occupation, and age, as well as a detailed profile of the community, like infrastructure and educational and health facilities in the area. After information is collected, assessments are made to determine a resettlement and rehabilitation package to limit potential negative effects of the development project on the environment, the livelihood of the population, as well as their social and community life. The duration of a SIA depends greatly on the size of the project, but they can often take a few months to half a year to complete.

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Benefits of Social Impact Assessments

Despite the time and cost, however, SIAs are instrumental in ensuring that businesses create a positive impact in the community, and information gathered as part of an SIA can be of vital interest to organizations conducting business or development projects in India. SIAs allow organizations to better predict the needs of the community and foster positive relations, especially when working in diverse and rural communities.

According to Research Associate Dustin Robertson at Kaarak, a social and economic development consultancy, the long-term benefits of conducting SIAs outweigh their initial costs, as positive relations with the community can lead to increased business productivity and recognition. Robertson further notes that SIAs decrease the risk of land protests and property vandalism, which can disrupt business-as-usual or even led to a complete shut-down of business operations.

Businesses that see SIAs as a bureaucratic nuisance may lose sight of the main purpose of SIAs: engaging communities and stakeholders in the identification, assessment and management of economic growth. SIAs can be particularly important in ensuring that land acquisition is carried out in a way that is beneficial to all parties involved, and that local communities are not marginalized by the development process. Furthermore, SIAs allow communities to have a voice in the development process.

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Looking Forward

Since taking office last year, Modi has sought to improve the ease of doing business in India in order to attract foreign investment in areas like manufacturing. As a result, regulatory tools like SIAs that are sometimes framed as a hindrance for making the development process more complicated and costly.

However, according to Robertson, it is crucial for the private and public sector to recognize the importance of SIAs: “in today’s interconnected business environment, companies cannot and do not operate in a vacuum. They are symbiotically connected to their surrounding community. Relations with these communities can have huge impacts, both positive and negative on business.”

SIAs should be seen as a vital investment tool to help businesses foster positive relations within the communities they operate. Especially in a country where social unrest and land disputes have often stalled business and development projects.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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