How the de­cline in new projects has dashed hopes of a quick eco­nomic turn­around

HT Estates - - FRONT PAGE - Nikita Kwa­tra

MUM­BAI: New capex an­nounce­ments de­clined for the se­cond time in a row in the just-ended Septem­ber quar­ter, sug­gest­ing that the animal spir­its of In­dian in­dus­tri­al­ists have been sub­dued by do­mes­tic and global head­winds. Fresh data re­leased by the project-track­ing data­base of the Cen­tre for Mon­i­tor­ing In­dian Econ­omy (CMIE) shows t hat I ndian com­pa­nies an­nounced new projects worth ₹1.49 tril­lion in the quar­ter ended Septem­ber, down 41% from the pre­vi­ous quar­ter, and 12% lower than in the samepe­ri­od­last year.

The sus­tained de­cline in capex an­nounce­ments was led by a sharp de­cline in new project an­nounce­ments by the pri­vate sec­tor. New pri­vate sec­tor projects fell 64% in the Septem­ber quar­ter com­pared to the June quar­ter. Com­pared to a year ago, they were 31% lower.

New pub­lic sec­tor projects showed an im­prove­ment over the June quar­ter. From nearly a six-year-lowin the Junequar­ter, new pub­lic sec­tor projects in­creased 64%. How­ever, the value of new pub­lic sec­tor projects in the just-ended quar­ter is about 2% lower com­pared to the same pe­riod last year.

De­spite the rise in pub­lic sec­tor project an­nounce­ments, which ex­ceeded the value of pri­vate sec­tor project an­nounce­ments for the first time in four quar­ters, over­all capex num­bers con­tinue to dis­ap­point.

One sil­ver lin­ing is the rise in new projects in the man­u­fac­tur­ing sec­tor, which wit­nessed a sharp re­cov­ery from the lows of the June-ended quar­ter. Yet, the value of new­man­u­fac­tur­ing­pro­jects in the Septem­ber quar­ter is lower than what it was in the March quar­ter.

The CMIE data also shows that projects un­der im­ple­men­ta­tion saw in­creased stalling in the just-ended quar­ter. The in­crease in stalling rate in the quar­ter was en­tirely onac­count of the pri­vate sec­tor, where the stalling rate re­mains near all-time highs.

Stalling rate is cal­cu­lated as a per­cent­age of the to­tal projects un­der im­ple­men­ta­tion so that the values are com­pa­ra­ble across time. As much as 11% of all projects un­der im­ple­men­ta­tion re­main stalled, while 24% of all pri­vate sec­tor projects re­main stalled. In com­par­i­son, only 3% of gov­ern­ment projects re­mained stalled.

Min­ing, power gen­er­a­tion, and real es­tate and con­struc­tion, which were key driv­ers of the capex cy­cle dur­ing In­dia’s last boom (2004-08), are now stuck with a large amount of un­pro­duc­tive as­sets in the form of stalled projects.

The power and man­u­fac­tur­ing sec­tors re­mained the worst af­fected by stalling. The power sec­tor ac­counted for 35.5% of all stalled projects while man­u­fac­tur­ing ac­counted for 29.5%. The big­gest rea­sons for stalling are lack of funds, prob­lems with fuel and raw ma­te­rial and un­favourable mar­ket con­di­tions.

Lack of funds and un­favourable mar­ket con­di­tions have be­comemuch­big­ger con­straints to­day com­pared to even two years ago (­FuM). If lack of clear­ances were the ma­jor stum­bling block for projects in 2016, lack of funds and un­favourable mar­ket­con­di­tions are the lead­ing road blocks to­day, with their com­bined share in stalled projects ris­ing eight per­cent­age points over the past two years to 23% in the Septem­ber quar­ter.

This sug­gests that the com­bined ef­fects of the bad loans cri­sis, the rise in global lend­ing rates, and the on­go­ing sell-off across emerg­ing mar­kets have dealt a body blow to the fi­nanc­ing and risk-tak­ing abil­ity of In­dian com­pa­nies.

The rise in do­mes­tic and global eco­nomic un­cer­tain­ties over the past few months com­bined with ris­ing po­lit­i­cal risks ahead of the gen­eral elec­tion in 2019 will likely dampen the ap­petite for fresh in­vest­ments among In­dian com­pa­nies in the com­ing months.


There is a rise in new projects in the man­u­fac­tur­ing sec­tor

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