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Business News/ Market / Mark-to-market/  Stalled projects come down, but not enough to boost growth
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Stalled projects come down, but not enough to boost growth

As a fraction of GDP in the March quarter, stalled projects dropped to 6.8% against 7.1% three months earlier, a fourth straight quarter of moderation

A quick restarting of projects is necessary because signs of new investment intentions in the March quarter weren’t encouraging. Photo: Hemant Mishra/MintPremium
A quick restarting of projects is necessary because signs of new investment intentions in the March quarter weren’t encouraging. Photo: Hemant Mishra/Mint

Stalled projects have started moving. As a fraction of gross domestic product (GDP) in the March quarter, they dropped to 6.8% compared with 7.1% three months earlier, a fourth straight quarter of moderation. It is encouraging news since the flow of new investments announced in the three months ended March was lower than the previous couple of quarters.

Problems such as those relating to land, and environmental and other clearances are slightly decreasing. For instance, at the end of December, a clear one-third of the top 100 projects by value were stuck owing to land acquisition problems. Now, only 27% of stuck projects cite land issues. Land is still the top reason for stalled projects and remains contentious, especially since the government has to repromulgate its land ordinance. Data also showed problems due to environmental clearances are declining.

It is encouraging because clearing policy related problems will spur a virtuous cycle of projects benefiting the broader economy, which in turn will spur other projects that are stuck owing to lack of funds and unfavourable market environment.

That said, supply bottlenecks in fuel and raw materials are troubling an increasing number of projects. About 14% of projects reported being stuck owing to supply problems compared with 9% a quarter ago. The coal auctions and measures to resolve gas issues for power plants are expected to help ease raw material concerns to some extent in the coming quarters.

Secondly, the overall pace of projects coming back on track has been slow. Also, as Nitin Bhasin, head of research at Ambit Capital, points out, “It is quite possible that this decline is due to shelving of some projects. If that is the case then the decline in stalled projects does not mean that the situation has actually improved in terms of clearances or other factors."

In the December quarter, for instance, the number of stalled projects had declined sharply because projects worth some 73,000 crore were scrapped, said Bhasin.

A quick restarting of projects is necessary because signs of new investment intentions in the March quarter weren’t encouraging. It was a comedown from the December quarter’s number even after adjusting for the previous quarter’s 1.5 trillion Indigo airplane order. The decline in stalled projects will free up capital and pave way for new projects in the future.

As HSBC Research points out, “Eventually it’s all about new investments, as they alone can buttress a period of multi-year-high growth."

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
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Published: 13 Apr 2015, 06:40 PM IST
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