Don’t get your hopes up that India’s infrastructure will start to look like China’s after Narendra Modi’s historic victory. Modi’s Bharatiya Janata Party made big promises in its election manifesto, among them $1.4 trillion of investments in infrastructure by 2024 that would double the length of highways by 2022 and lead to a similar increase in the number of large commercial airports.

Despite the impressive show Modi and his party put up in the Lok Sabha elections, they don’t have a majority in the Rajya Sabha. 

Numbers move more slowly in the Rajya Sabha, with a third of members retiring every two years. That means that passing legislation such as a land-acquisition Bill, which is crucial to speed up infrastructure development, will remain a tough ask until at least 2020.

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Main hurdle

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 Rajya Sabha previously rejected a land acquisition Bill.

Modi’s decisiveness may have won over voters, but he does not have a track record of boosting confidence among Indian companies. 

They are not 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 Centre for Monitoring Indian Economy, or CMIE. 

The value of stalled projects has risen to almost ₹3-lakh crore 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. 

Private sector’s role 

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.

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