UPDATE 3-India government introduces long-delayed land reform bill
* Bill likely to be approved in December: Minister
* Legislation seen key to government's electoral chances
* Proposes paying four times market value for land in rural areas
* Farmers and businessmen criticise compensation plans (Adds details of bill, comment)
NEW DELHI, Sept 7 (Reuters) - India's government edged closer to replacing a century-old land acquisition law on Wednesday, introducing a bill in parliament that seeks to placate a rural voter base worried it is being short-changed in the country's rush into modernisation.
Delayed for months by anti-corruption protests that paralysed parliament, the bill that would increase compensation for forced and large land sales was squeezed into the lower house ahead of a recess and could be voted on in December.
Compulsory land acquisition for the public good is a contentious issue as crowded India seeks to industrialize, often at the expense of small landholders. The new bill proposes paying four times market value for land earmarked for infrastructure projects in rural areas.
The legislation, spearheaded by ruling Congress party leader Sonia Gandhi and her son Rahul, is seen as crucial for the government's chances of winning elections in the heartland state of Uttar Pradesh next summer.
The Gandhis have staked their political future on making big gains there ahead of a general election in 2014, where Rahul Gandhi is seen by many as a potential prime ministerial candidate for the Congress party.
"The entire credit for this bill should go to Rahul Gandhi," Rural Development Minister Jairam Ramesh told reporters. He said opposition parties broadly supported the reform, which he hoped will be approved in December.
The mainly poor farmers who make up the bulk of India's 1.2 billion population worry they are being ripped off by rapacious businessmen and politicians in land deals, while companies are wary of making large investments for fear courts will strip them of their holdings.
The government wants to meet the needs of the farmers but must also keep India's economy growing at a fast rate by attracting investment for new roads, housing and factories.
Major infrastructure projects are currently held up by clashes over land. Tata Motors had to abandon plans in 2008 to build a car factory in West Bengal state due to violent protests by farmers.
'LAND FOR LAND'
In the poor coastal state of Orissa, protests by farmers have slowed the construction of India's biggest single foreign direct investment, a $12 billion steel mill belonging to South Korea's POSCO .
Farmers there say they will have no livelihood if they sell and accuse police of burning crops and beatings to force them out on orders of corrupt officials in cahoots with business.
"For POSCO, most farmers are just not willing to sell their land, said Madhuresh Kumar, a land activist with the National Alliance of Peoples' Movement. He said farmers wanted their land replaced with farms of the same quality.
"Money can never replace land or livelihood, In urban areas maybe money can satisfy, not in rural areas. There should be a land for land clause."
Under the bill, the government can forcibly acquire land if 80 percent of families affected by a project agree to sell. Payment will be several times over market value.
Private firms buying more than 100 acres of land in rural areas or more than 50 acres in urban areas, will also have to compensate affected families by providing jobs to at least one member of the family or an annuity for 20 years.
Critics say the new rules will push up costs and encourage companies to exploit loopholes.
"As a company I will try to find a way out," said M R Madhavan, head of research at legislation think-tank PRS India. "And there is an easy way out. I will make two smaller purchases."
The bill has broadly been praised by industry for setting clearer rules, but there is also concern higher land costs will be passed on to consumers.
"Costs will possibly be very large," Rajeev Talwar, executive director of DLF , India's largest developer, told Reuters. "This is only going to make housing even more unaffordable."
First proposed in 2007, the bill would replace an 1894 law written by the British.
It has until now been held up by political wrangling. The government of Prime Minister Manmohan Singh has been criticised for failing to push through more quickly this and other reforms seen as vital for driving growth.
Significantly, the new rules will not apply to land acquisition for roads, defence, railways, mining and special economic zones for export industries. (Additional reporting by Abhijit Neogy and Rajesh Kumar Singh in New Delhi and Henry Foy in Mumbai; Writing by Frank Jack Daniel; Editing by Paul de Bendern and Ed Lane)
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