Why Industrial Projects Are Stalled In India

When industrial projects are stalled, economic growth suffers. But, there is much more to it. When industrial projects are stopped, or are being developed at a slow pace, the demand for housing in surrounding areas declines. The uncertainty could alter the structure of Indian cities and pattern of housing consumption.

So, it is important to understand why this happens.

Even though the common belief is that land acquisition is a major reason, according to the Ministry of Finance, only 8.2 per cent of the projects in India are stalled because land acquisition is difficult. This is surprising, but this suggests that there are more significant factors involved. The single biggest reason (38.9 per cent) why projects are stalled is that the promoter loses interest in the project or runs out of funds, often because of slow economic growth. This is why many economists look at fluctuations in housing prices to predict fluctuations in GDP (Gross Domestic Product) growth rate in economies where housing markets function well. This is also why fluctuation in housing prices is witnessed as a precursor to economic booms and busts.  

According to the numbers unveiled by the finance ministry, 19.9 per cent of the projects are stalled for other reasons, though it is not clear what these “other reasons” are. In 16.2 per cent of the cases, it is not clear why these projects were stalled. Even though the land acquisition bill was widely opposed by activists and many intellectuals, no developed country places such restrictions on acquisition of agricultural land and conversion of agricultural land for other purposes. The conversion of agricultural land for non-agricultural purposes is very important for urbanisation to take place, and for farmers to move into non-agricultural purposes. It is also important to increase the supply of urban land, to make housing more affordable, and to allow faster execution of industrial projects. This is a problem nevertheless, because 38 per cent of the land acquired for special economic zones remains unused.

In 11.7 per cent of the cases, it is lack of various government clearances and in 4.1 per cent of the cases, it is the difficulty in obtaining environmental clearances that is stalling industrial projects.  Even though some of these restrictions make sense, in most cases, environmental restrictions and various other constraints merely make it extremely difficult to build industrial outlets and housing projects. Only in one per cent of the cases are projects stalled because of natural calamities.

As 804 industrial projects across India are stalled according to the Indian government, this is one of the largest barriers to urbanisation and housing affordability.

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