A number of projects were stalled in India, mostly in private sector, last year due to lack of promoters' interest and unfavourable market conditions, Singapore-based DBS bank said today.
Net exports remain a drag as weakness in exports outweighs the benefits from a narrower oil imports bill.
Stalling of projects has been a major contributor to this decline, with its stock rising to INR 11.4 trillion by March 2016 from INR 8.6 trillion in 2013, the bank highlighted.
Of the projects being implemented, about 12 per cent face renewed hurdles according to centre for Monitoring Indian Economy (CMIE) data, said the bank in a report on the Indian economy.
Worryingly, more projects have stalled in the private sector compared to the government sector.
Sector-wise, projects are not only stalling in the resource-based industries but also in the manufacturing and services sectors.
Contrary to popular narrative, land acquisition and lack of clearances are no longer the key reasons behind the stalled projects.
These two factors accounted for about a tenth of the stalled projects last year, down from 27 per cent in Financial Year 11-12.
A bigger hindrance instead has been lack of promoters' interest and unfavourable market conditions.
This has its roots in the uncertain investment climate, slowing external growth and insufficient demand revival to spur capex (Capital expenditure) spending.
An increase in new investment commitments, however, provided a faint silver lining.
Fresh interests by the private sector rose by a faster 10 per cent year-on-year in the first quarter of 2016 from sub-8 per cent in fourth quarter of 2015, while the public-led sector was steady at 15 per cent.
Yet, scepticism remains.
These projects only reflect intent to invest, and require clearances to be realised as actual investments, said the bank.
Corporate debt rose to a peak at 60 per cent of GDP last year from below 50 per cent before the global financial crisis.
Expectations of an improving economic backdrop and demand pick-up drove the build-up in debt levels, according to the bank.
However, slow progress on investment projects, high financing costs and difficult market conditions hurt earnings and profitability.
Capacity utilisation rate has been easing, while the total inventory to sales ratio continues to inch up.
The corporate sector's underperformance has stressed the banking sector.
Including restructured and non-performing loans, banks' overall stressed advances jumped to over 11 per cent of total advances by September 2015.
Infrastructure, mining, iron/steel and two others make up
more than half of the bad loans faced by the domestic banks.
More pain is in store as the RBI expects stressed assets to be fully provisioned by March 2017, said the bank.
The bank said India's real Gross Domestic Product (GDP) growth is likely to average 7.6 per cent year-on-year this year from an estimated 7.4 per cent in Financial year 2015-16.
Downside risks stem from a steeper correction in investment growth and sluggishness in consumption spending if inflation worries return.
Last year's net foreign direct investments (FDI) into India were not geared towards boosting the domestic capex cycle or manufacturing activities, it observed.
The record FDI of USD 37 billion in 2015 rose 60 per cent year-on year with gross inflows up by a third from the year before, it noted.
Services attracted the most inflows in 2015, making up nearly half of the total stock.
By contrast, the manufacturing sector's share has slowed to a fifth and that of infrastructure to near five per cent of the total flows.
This contrasted with 2014 when services and manufacturing sectors each accounted for roughly a third of the flows.
Even as FDI flows strengthened last year, it is unlikely to provide an immediate boost to industrial and investment activities, according to the bank.
This backdrop suggests the Indian economy will face another year of uneven growth.
