Access to land, which is expensive and difficult to acquire, remains the single biggest issue for why road and other construction projects stall in India, according to capital expenditure surveys and Goldman Sachs Group. The upper house previously rejected a land acquisition bill.
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Modi’s decisiveness may have won over voters, but he doesn't have a track record of boosting confidence among Indian companies. They aren’t going to start spending until they see signs that the government is making progress on cutting through the perennial regulatory hurdles surrounding land. During Modi’s first term, private companies slowed their spending on plants and machinery to a 9.2 per cent rate of annual expansion, and employment growth fell to 1.3 per cent. A decade ago, spending was growing at 19.5 per cent and employment at 10.5 per cent, according to data from the Center for Monitoring Indian Economy, or CMIE.
The value of stalled projects has risen to almost Rs 3 trillion since June 2018, even if a flurry was completed just prior to the election. Fewer are being revived. New investment proposals in the last fiscal year were the lowest in 14 years, after rising when Modi first came to power. Meanwhile, the private sector’s role in new investment proposals fell to 47 per cent between 2014 and 2016, from 62 per cent between 2006 and 2011, according to Mahesh Vyas of the CMIE. Even the amounts committed by mostly indebted government-backed companies have fallen during Modi’s term, from already paltry levels.
Shares of construction and transport companies such as Larsen & Toubro, Dilip Buildcon and Adani Ports & Special Economic Zone have risen sharply this year on hopes of a “New India.” The reality for infrastructure companies is that Old India will be around for a while longer.