Vote Blunts $24 Billion Green Approvals Deluge: Corporate India
India’s new Environment Minister Veerappa Moily has approved $24 billion of projects from steel mills to mines in just one month to undo a logjam of clearances. Elections due by May could prevent them breaking ground soon.
Moily’s flurry includes revalidated approval for South Korea’s Posco to build a $12 billion steel complex that’s been delayed by nine years, and the green light for a bauxite mining project from Hindalco Industries Ltd. (HNDL), pending since 2011. As the ruling Congress party’s popularity slumps, companies face the risk that the next government will revisit those decisions.
“A lot of companies are watching to see the outcome of elections, as are we,” said A.S. Suresh Babu, managing director at Vizhinjam International Seaport Ltd., which got Environment Ministry approval on Jan. 3 to build a port in the southern state of Kerala. “We’re starting only some preliminary work.”
Opinion polls signaling the possibility of an unstable coalition, with Congress and the opposition Bharatiya Janata Party struggling for majorities, are adding to the uncertainty. The cloudy outlook threatens to hurt efforts to revive India’s slowing economy as red tape stalls more than $100 billion of projects and emerging markets try to prevent capital flight.
The rupee fell 0.6 percent to 62.769 as of 10:47 a.m. in Mumbai, after the U.S. Federal Reserve reduced monetary stimulus for a second straight meeting, further tightening the easy-money tap for emerging economies.
“Many of the sponsors taking up large projects are suddenly developing a wait-and-watch attitude,” said Suneet K. Maheshwari, chief executive officer of Mumbai-based L&T Infrastructure Finance Co., which funds energy, road and port projects. “Even if they get their clearances, many will possibly wait till May or June until the outcome of elections.”
That hasn’t stopped 74 year-old Moily, who’s also India’s petroleum minister. He said in a Jan. 21 interview at an event at a gas station in New Delhi that he’s clearing projects each day. All projects “that have the necessary approvals will be cleared,” he said, before adding he had to head back to his office to sign more files.
Moily estimates that he’s approved 1.5 trillion rupees ($24 billion) of projects. Moily replaced Jayanthi Natarajan, who quit in December. Natarajan denied being pushed aside because of industry opposition to project delays, the Times of India reported last month.
For New Delhi-based Jindal Steel & Power Ltd. (JSP), the delays and uncertainty translate into lower investment. The company is cutting capital expenditure by two-thirds to 30 billion rupees in the year starting April 1 as it awaits the election outcome, its Managing Director Ravi Uppal said.
“We have to have a policy of manageable growth,” Uppal said. “We are taking a pause and waiting for a new, stable government to come.”
The election pits Prime Minister Manmohan Singh’s Congress-led administration against a resurgent BJP led by Narendra Modi, the chief minister of Gujarat state. More than 700 million people will be eligible to vote.
Congress has been beset by graft scandals and high inflation that’s been exacerbated by a 14.6 percent drop in the rupee against the dollar in the past year. Modi is projecting the stronger-than-average growth in the state he’s ruled since 2001.
The BJP and its allies would win 212 seats, more than the 159 seats they took in the 2009 elections, while the Congress-led alliance would get 103 seats, according to a C-Voter poll for India Today published on Jan. 23.
A BJP government would seek to curb inflation and spur investment in infrastructure, and the party is considering reviewing the country’s overly complex tax system, BJP President Rajnath Singh said in an interview aired yesterday.
Goldman Sachs Group Inc. said in November “equity investors tend to view the BJP as business-friendly” and prime ministerial candidate Modi as “an agent of change.”
“The new projects clearances will aid an increase in investment and help economic development next year,” said Devendra Pant, chief economist at India Ratings & Research Pvt., the local unit of Fitch Ratings. “The next government will have to carry forward the reform process.”
Moily’s revalidated clearance for Pohang, South Korea-based Posco’s steel complex in eastern Odisha state has brought India’s biggest foreign investment project a step closer to implementation. At the same time, it’s still awaiting an iron ore prospecting permit.
Posco in July said it had scrapped a separate plan to build a mill in the southern state of Karnataka because of delays in getting mining rights and purchasing land. ArcelorMittal (MT), the world’s biggest steelmaker, ditched a 12 million-ton-a-year project in Odisha the same month for similar reasons.
Nor has it been entirely plain sailing for companies under Moily’s new Environment Ministry regime. He rejected Vedanta Resources Plc (VED)’s mining project in Odisha, which was to supply bauxite for an $8.1 billion aluminum complex, following objections by local villagers who believe their God resides in the hills.
The mixed picture signals challenges ahead to return Indian expansion to the levels of more than 9 percent last seen in 2011. The $1.8 trillion economy will probably expand “a little below” 5 percent in the year ending March, according to the country’s central bank. That would be the weakest since 2003.
“When there is a sudden flurry of approvals, after a long break, investors become a little wary and prefer to wait for things to stabilize before proceeding,” said Deepak Kapoor, chairman of PricewaterhouseCoopers India. “India will miss the bus if we fail to deliver stronger growth rates.”
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