A solar push to India’s investment cycle

Solar energy projects alone accounted for `62,800 crore of the `68,200 crore renewable energy projects announced in September quarter

Ravi Krishnan
Updated8 Oct 2014, 11:33 PM IST
An increase in solar energy projects from states and Centre is part of the government&#8217;s initiative to increase solar energy capacity 40-fold in the next 10 years for which an investment of around `6 trillion is estimated to be required. Photo: Mint<br />
An increase in solar energy projects from states and Centre is part of the government&#8217;s initiative to increase solar energy capacity 40-fold in the next 10 years for which an investment of around `6 trillion is estimated to be required. Photo: Mint

The sun is shining on the Indian economy’s capital expenditure recovery cycle. Perhaps not in a way one would expect though. New project announcements rose to 2.14 trillion in the September quarter, up from 90,840 crore in the three months ended June, according to the Centre for Monitoring Indian Economy (CMIE). One way of interpreting those numbers would be that positive sentiment owing to a new government taking charge and some of its measures are translating to some action on the ground. But that is only one part of the story.

About half, or 1.05 trillion, of these fresh investment intentions are from the electricity generation sector. That’s more than a five-fold jump from the 19,300 crore worth of projects announced in the April to June quarter. In fact, it is just 20% lower than the combined investment announcements of the past three quarters in this sector.

The problems with the power industry are well known, so what is driving this investment? It turns out that most of these project proposals are from central or state government bodies. They have announced 81,000 crore worth of projects. Of this 68,200 crore, or three quarters of the total, are renewable energy projects. Solar energy projects alone accounted for 62,800 crore—with a single ultra mega power unit announced by the Tamil Nadu government worth 26,000 crore.

This is part of the government’s initiative to increase solar energy capacity 40-fold in the next 10 years for which an investment of around 6 trillion is estimated to be required. It also comes at an opportune time given the whole mess around coal block allocation. But the big questions are the sustainability of this trend and how many of these proposals will come to fruition.

What about the larger implications for the economy and the investment cycle? Yes, investment announcements in the manufacturing sector too grew to 35,700 crore, up about one-fifth from June quarter, but other industries haven’t shown any sign of a pick up. As an RBI survey showed, capacity utilization dipped to 70% during April-June, at least a six-quarter low. Some industries have excess capacities at a decade’s high as this column pointed out last week as well (mintne.ws/1uYTw1Q)

While the government is trying to remove clearance roadblocks, many still remain. A clear third of 1,162 stalled projects monitored by CMIE (for whom such data is available) are stuck owing to clearance or land acquisition problems. Unless there is a broad-based pick up in investment, especially in the non-infrastructure sectors, it would be difficult to call this a recovery.

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First Published:8 Oct 2014, 11:33 PM IST
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