That rising interest rates will crimp capital expenditure is known. While, anecdotally, we hear companies talking about pulling back on capital spending, the chart below presents evidence of the slowdown in investments. Although new projects announced by the government have picked up, private sector investments have almost come to a halt. At the same time, there is a sharp rise in the number of stalled and binned projects, while completion rates, too, are slowing.
Also See | Infra Dig (PDF)
Rising loan rates aside, there are a host of other factors responsible for the slowdown. Land acquisition and environmental clearances have been a well-documented problem. ‘Bloomberg’ estimates $80 billion (Rs 3.92 trillion today) worth of steel projects alone are being held up due to land-related problems. Power projects are grinding to a halt because there is not enough coal and gas to fuel electricity generation.
Global Markets Inc. cites two other reasons: One, the government has not made any major policy announcement on the infrastructure capex front after the National Highway Development Programme and ultra mega power projects. Second, due to the delay in previously commissioned projects—that led to ballooning costs and lower return on equity—analyst and investor perception about the supernormal returns from infrastructure projects has changed. That could make fund-raising costlier and lead to a further slowdown in the coming quarters.
PDF by Yogesh Kumar/Mint