New projects surge in December quarter; up 37% at Rs 4.26 trillion

Investment in new projects increased by more than Rs 1 trillion during October-December 2019 over the same period in the previous year. 

There was Rs 3.1 trillion in new projects in December 2018. This has risen by 37.4 per cent on a year-on-year basis to Rs 4.26 trillion in December last year, showed the data from project-tracker Centre for Monitoring Indian Economy (CMIE).

The body releases capex data at the end of every quarter. 

It also showed the proportion of “stalled projects” is down 81.8 per cent to Rs 58,000 crore.  Completed projects remain at the same level. The number for December 2018 shows Rs 1.37 trillion. It is Rs 1.36 trillion in December 2019.

The rise in new projects is despite a fall in capacity utilisation. It was at 68.9 per cent in the September quarter, noted the Reserve Bank of India in its December 19 Monetary Policy Committee meeting minutes. 

It was at 73.6 per cent previously. A similar decline is seen on a seasonally adjusted basis as well.

“Seasonally adjusted CU (Capacity Utilisation) also fell to 69.8 per cent from 74.6 per cent during the same period,” it said. This means that companies are increasingly unable to use their existing production capacity, which gives them limited incentives to invest in adding capacity. This has weighed on capital goods companies.

Marquee firms such ABB India and Siemens are seeing lower demand, noted brokerage firm Motilal Oswal Financial Services. Growth in order flow fell to 5 per cent for ABB, according to the recent quarterly data. Siemens’ order flow fell 14 per cent. This, in turn, is said to be because of a slowdown in other markets such as auto, and food and beverages, said the 6th December Sector Update report, authored by research analysts Nilesh Bhaiya and Pratik Singh.

A public sector undertaking (PSU) push could be driving some of the gains.

“This should be coming from public sector units. What they are borrowing from the market they are using for capital investment. If you look at the banks’ lending data for industries, it is negative, so banks are not lending for capital formation. Capital investment is then coming from PSUs borrowing from the bond market,” said Madan Sabnavis, chief economist, CARE Ratings.

M S Unnikrishnan, managing director and chief executive officer (CEO), Thermax, said: “There were a couple of refinery projects awarded in the December quarter from the public sector. Awarding for road projects continued. There are also awards in the railways and metro projects segment.” 

The government has also sought to push other investment.

Finance Minister Nirmala Sitharaman chalked out a Rs 102-trillion infrastructure investment plan on Tuesday, with some of it already in progress. 

Infrastructure projects currently face multiple headwinds, according to the Report of the Task Force on the National Infrastructure Pipeline, released on the last day of the year.

“The major constraints faced are availability of funds for financing large projects, lengthy processes in land acquisition and payment of compensation, environmental concerns, time and cost overruns due to delays in project implementation, procedural delays and lesser traffic growth than expected increasing the riskiness of the projects resulting in stalled or languishing projects and shortfall in funds for maintenance,” it said.

It has sought to address some of these issues through financial sector reforms such as promoting the development of bond and credit markets, better monitoring mechanisms, and creating an enabling environment overall through ironing out environmental and sustainability issues.