Firms may rethink land row-hit projects

With recession threat looming large, Indian corporate houses may be forced to rethink their projects, which have been stalled following problems in land acquisitions, industry analysts said.

Recently, Tata Motors shifted the production venue of its small car, Nano, from West Bengal to Gujarat, after it encountered problems in land acquisition. With the shift in plans, the cost of investment for the company has increased by 20 per cent from the initial estimate of $340 million (about Rs 1,700 crore).

This is just the tip of the iceberg. Projects across industries in various parts of the country are facing roadblocks with land not being available. According to an estimate by international brokerage Credit Suisse, there are as many as 18 such projects, including those of Tata Steel and ArcelorMittal, which are delayed by nine to 36 months.

"Profitability of such projects have been severely impacted and at the time of recession, companies may rethink their investment plans," said Ajit Motwani, an analyst with Mumbai-based brokerage firm Emkay.

The cost of funding has increased significantly in the last six months. This will put additional burden on the companies in terms of interest costs.

Steel industry is one of the worst hit due to land acquisition problems. India’s biggest steel-maker Tata Steel’s projects in Jharkhand, Orissa and Chattisgarh are delayed by about two to three years. The initial cost of setting up these projects was $16 billion, which has now increased by 50 per cent.

Similarly, ArcelorMittal's two projects, with an estimated investment of $18 billion, in Jharkhand and Orissa have been delayed due to land problems. The cost of these projects have also gone up by 50 per cent. JSW and JSPL's Jharkhand and Orissa plans have also been stalled.

"Land is valuable for these companies, so they would grab it at the earliest. Only after that, they would talk about whether they plan to defer investments or they have a new strategy," said a steel analyst with a foreign brokerage who did not wish to be quoted.

Power is another sector where delay is increasing the cost of projects. Various power projects under the 11th five-year plan worth about $31 billion have been delayed by 10-12 months, increasing the cost by about 15 per cent. Special economic zones, petroleum, cement, road infrastructure and ports are some other industries facing similar problems.