The Indian economy is already beginning to feel the hurt from the failure of Narendra Modi’s bid to pass a bill that would have made it much easier to find space for industrial or infrastructure projects. As it stands, seizing land requires virtually unanimous consent of all of the current owners, giving small landowners the power to obstruct major development projects—imagine trying to build a major U.S. highway with that standard, and you can see what the problem with India’s current system is. Modi has been trying to lower the barrier, so that if a prospective investor can get 80% buy in, the project can go ahead. But the land reform, a top item on the prime minister’s agenda since he took office, was held up in parliament for months. And as we noted last week, Modi has finally given up and conceded on the main issue.
Now, in the first of what are likely to me many casualties of the onerous status quo, a major steel concern that was planning to invest in a huge plant in India is taking it’s business elsewhere. The Wall Street Journal reports:
South Korean steelmaker Posco said Friday it has decided to put on hold a $12 billion project to build a steel plant in India, as part of restructuring to cut its overseas business amid a global industry slowdown.
“We have decided to shut down unprofitable local and overseas businesses as part of a restructuring plan aimed at boosting profit growth,” said a Posco spokesman. […]
A Posco India spokesman said the company has so far acquired only around 600 acres out of more than 4,000 acres needed for the 12-million-tons-per-annum steel plant, billed as one of the largest foreign-direct investments in India.
“There has been no progress on the site. We are not able to acquire land,” he said.
The company isn’t planning to shift the steelmaking project to another Indian state, the spokesman added.
Meanwhile, India’s biggest unions are uniting in opposition to Modi’s plan to distill 44 labor laws down to just 4 in hopes of making it easier for businesses to hire, retain, and fire employees. The country’s 11 largest labor groups are calling for a nation-wide strike on September 2nd, a threat serious enough to earn their leaders a meeting with Modi today. The leader of India’s largest union, which has in the past supported Modi and the BJP party, threatened last week that “[i]f there’s no satisfactory reply from the prime minister, the strike will continue.”
If India wants to grow into the kind of power Modi and the many cheerleaders of his reform agenda want it to be, it cannot afford to miss out on huge, job-creating projects. Successive Indian governments have tried and failed to change things, and their failure bodes ill for a business-friendly future. Indeed, without major reforms to land law, interstate tariffs, the gobs of red tape that surround hiring and firing, and several more key issues, India will be unable to make it into the top circle of world powers.
Glancing over to the sidelines, be assured that China could not be more thrilled that Indian reform isn’t going according to plan.