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Finally, there’s some good news for India Inc and the National Democratic Alliance (NDA) government. Stalled projects, a major concern on the economic front, are coming back on track, with the value of such projects declining by more than half in the past year. According to data provided by the Centre for Monitoring Indian Economy (CMIE), the value of stalled projects dipped 60.35 per cent to Rs 79,300 crore in the quarter ended June this year from Rs 2,00,000 crore in the year-ago period.
“During the past year, expectations of resolution to problems afflicting projects have increased. This has played a very important role in reducing the incidence of projects being stalled. Besides, for a long time now, new investment projects have been falling. Therefore, the stock of projects that could be stalled is growing at a lower pace than earlier,” said Mahesh Vyas, managing director and chief executive of CMIE.
Of the 758 stalled projects, most were showing signs of traction because of a change in government, a stable leadership and faster project clearances, experts said. During the last three years of the United Progressive Alliance government, a large number of infrastructure projects were either stalled or abandoned, primarily due to lack of environment clearances, land acquisition delays and high cost of funds.
An HSBC report said the April-to-June “unstalling activity” was largely focused on manufacturing and transport services (primarily roads and rail), which together accounted for half the stock of stalled projects; not as much in mining, electricity and construction, which account for the other half.
The positive trend has also been captured by Deutsche Bank, which, in a report dated June 22, said the last quarter of FY15 saw a pick-up in project approvals. “The last quarter of FY15 indeed marks the highest number of clearances received since the fourth quarter of 2013. Coal was among the key sectors to see a spurt in clearances, receiving 14 clearances, one of the highest since FY13. The metals sector also saw a rebound in clearances,” it said.
But work for the NDA government is far from over. In an analysis of the CMIE numbers, HSBC says its own analysis of stalled projects suggests substantial government action is needed to get the remaining stalled projects on track, as about half of these are stuck due to policy-related issues. “Executive action on fast-tracking clearances and sorting out raw material availability is still needed, especially for private sector projects which haven’t seen as much unstalling. Legislative success on the land acquisition Bill will also be important, though it will probably take longer to get passed. So, several more quarters of hard work are needed to salvage stalled projects, which have potential to start again,” said Pranjul Bhandari, chief India economist, HSBC Securities & Capital Markets.
HSBC said in June, stalled projects accounted for 6.6 per cent of gross domestic products, down from a peak of 8.4 per cent in March 2014.
However, it’s not all good news. CMIE also said fresh capital expenditure by Indian companies remained sluggish in the first three months of this financial year, as lack of raw material and unfavourable market conditions were hurting many companies.
Six projects, involving investments worth Rs 27,700 crore, were dropped in the electricity generation sector. Reliance Power shelved its Rs 25,000-crore Tilaiya ultra mega power project due to non-availability of land, six years after the contract was awarded.
In FY15, projects worth Rs 3.7 lakh crore were commissioned, while projects worth Rs 1 lakh crore were commissioned in the June 2015 quarter alone (Rs 4 lakh crore on an annualised basis). CMIE said the number of projects commissioned in the June quarter was expected to rise, as information on completion of projects came with a lag.
At Rs 1.15 lakh crore, new investment announcements during the quarter ended June this year recorded growth of 33 per cent compared to the year-ago period; 498 new investment proposals were announced. Fresh proposals announced in the June 2014 quarter were much lower.
Among the companies investing in capital expenditure is Reliance Industries Ltd (RIL), which is implementing expansion of its petrochemical facility in Gujarat and rolling out its wireless cellular and data services. RIL has announced investment of Rs 2,50,000 crore in expanding its capacity in wireless services alone. The Gautam Adani-owned Adani Group has signed memoranda of understanding to spend about Rs 2,00,000 crore in various projects in the ports, solar power and electricity-generation sectors.
