There is bad news on the stalled projects front once again. After registering a decline in the June quarter, stalled projects as a percentage of projects under implementation saw a marginal rise in the September quarter. The figure picked up from 11.66% in the three-month period ending June, to 11.90% in the latest quarter. This represents an increase of over Rs.21,000 crore in the total value of such stuck projects.
The private sector continues to be more affected than the government when it comes to the stalling of their projects. The proportion of stalled private sector projects were more than three times the equivalent figure for government ones, shows the latest data from project-watcher Centre for Monitoring of Indian Economy (CMIE). Nearly a fifth of all private sector projects under implementation are stalled. The equivalent figure for the government projects is little over 6%.
The biggest segment which has been affected by stalled projects continues to be the power (or electricity) sector. The sector accounted for over a third of all stalled projects. The other big sector facing the problem of stalled projects was manufacturing, which contributed 28.84% to the stalled project pipeline. Power and manufacturing, account for over half of the total number of stalled projects. Services (other than financial) are the third big segment which have a large proportion of stalled projects. It accounts for another 24%.
The reasons for stalling continue to be varied. This time, lack of funds was the biggest reason for work stoppage when one looks at stalled projects by number. This figure indicates that the reason for weak credit growth might not be lack of demand from borrowers as has been suggested. Instead, reluctance on the part of banks—grappling with Rs 6.3 trillion of bad loans—might be responsible for the problem at hand.
Among other problems, fuel supply and raw materials account for the most stoppages when one looks at projects stalled by cost. Land acquisition is still a bottleneck for projects, the data shows.
The problems that the private sector is facing on stalled projects may well explain their reluctance to make new forays. The government dominated new project announcements in the September quarter. It accounted for over Rs.1 trillion in new announcements (Rs.1.37 trillion) compared to Rs.0.6 trillion for the private sector. Experts have been arguing that a revival in investment will have to be led by the government. The private sector has been grappling with low demand and excess capacity as has already been talked about in the previous quarter as well.
It must be kept in mind that CMIE captures only the intention to invest under new project announcements. Companies may not have taken concrete steps to execute the project. Land acquisition, clearances and other procedural issues may not yet have been sorted out.
The main sectors which saw new projects include manufacturing and non-financial services. Manufacturing alone accounted for Rs.1.02 trillion in new project announcements.
Major stalled projects during the quarter include Rio Tinto India’s Madhya Pradesh diamond mining project and the Kerala Water Authority’s water treatment and distribution project. The first faced issues with environmental clearances. The second was unable to acquire the necessary land. The projects were worth Rs.3,100 crore and Rs.485 crore, respectively, according to CMIE.