The main Indian political parties have reached consensus on the land acquisition bill. This is a key land reform that has proved to be the single biggest stumbling block in improving infrastructure in India. The bill is expected to be tabled in Parliament during the current Budget session which ends on May 10. The proposed rules will replace The Land Acquisition Act of 1894, introduced under British colonial rule and adopted by the Indian Government after independence in 1947. The Act allowed the British Government to forcibly purchase land from owners for "public good" for certain projects (eg roads, canals and other public purposes) with compensation worked out by the Government. However, under democratic rule in independent India small landowners have protested, often violently, against what they felt was unfair compensation. Also, with high fiscal deficits run over the last many years, which has not left enough funds for the Government, the Government has pushed for the PPP model to fund infrastructure projects. If passed, under the new law developers will have to pay four times the market price of land in rural areas and twice the market price in urban areas. And, also provide displaced persons with jobs and homes. Many private companies have said that the project costs will rise substantially, sometimes making it unviable depending on the returns required by capital providers. But finally clarity of rules will remove the single biggest hurdle for infrastructure.
Eoin Treacy's view Prime Minister Singh's success in pushing
through reform of the financial sector, fuel subsidies and liberalisation of
the retail sector last September were welcomed by the market. In fact since
the general perception over the last few years has been that India was incapable
of breaking the paralysis in policy making, these reforms have been a catalyst
for increased investor interest.
China has long been lauded for its efficiency in developing infrastructure and has now embarked on a major initiative to bolster the consumer segment of its economy. India on the other hand has long benefited from a vibrant consumer base but has lagged with infrastructure development. While the payments to property owners may be exaggerated by inflation, the agreement on land purchases represents another step forward in improving India's provision of vital infrastructure to foster economic development.
One measure of the health of the infrastructure sector is the performance of cement stocks. If the pace of development increases demand for cement should improve. It is therefore noteworthy that such a high degree of commonality is evident in Indian cement companies. Associated Cement, Ambuja Cements and Ultratech Cement have all held progressions of higher reaction lows since late 2008 and most recently found support three weeks ago. Sustained moves below this month's lows would be required to begin to question medium-term upside potential. (Also see Comment of the Day on March 19th 2012).
The Bombay Banks Index has held a progression of higher reaction lows since early 2012 and rallied particularly impressively over the last three weeks. It is now somewhat overbought in the very short-term as its tests its all-time highs near the psychological 15,000 and potential for some consolidation has increased.