A spate of new project announcements in the March quarter haven’t resulted in the unclogging of the stalled project pipeline. Although there has been a marginal improvement, it can hardly be termed a revival in investor sentiment.

The total value of stalled projects was 11.22 trillion at the end of the June quarter. It was 11.26 trillion at the end of the March quarter, according to data from project-tracker Centre for Monitoring Indian Economy (CMIE). Projects where implementation was stalled as a percentage of total projects under implementation was 12.01% in June quarter. It was 12.13% in the March quarter.

Stalled projects are those which had begun implementation, but then got stuck on account of issues such as not getting the necessary clearances or being unable to acquire the land required for the project. Such projects are seen to have a greater chance of getting back on track, according to CMIE.

Private projects continued to have a greater chance of being stuck than government ones. The percentage of private sector stalled projects to those under implementation is 18.98% in the June quarter compared to 18.51% last quarter and 15.89% in the same quarter last year. Stalled projects in the public sector were 5.77% as on June-end in comparison.

Private sector companies have been facing issues of excess capacity in recent times. The asset turnover ratio of private sector companies fell to 1 in the financial year ending in March 2016 (FY16), noted a Mint story. The asset turnover is a ratio which looks at net sales divided by average total assets. The decline in recent years suggests that companies are not able to squeeze sales out of existing assets. This is also because they had added assets faster than growth in their sales in previous years.

This excess capacity is one of the reasons that the private sector has been unwilling to be at the forefront of a capital expenditure drive. It is not the only reason, however. The major reasons for stalling include fuel supply problems and land acquisition issues, besides unfavourable market conditions, shows CMIE data. Lack of environmental clearances and lack of funds are also reasons for stalling of projects.

The sector with the largest proportion of stalled projects is manufacturing. This is followed by electricity. The reduction in stalled projects is a necessary move for unclogging stressed assets with banks, as has previously been said.

The situation in the case of new project announcements is also interesting. New project announcements are measured by project cost. It has fallen by over 60% in the June quarter in both the private and public sector compared to the previous quarter. But this is also because the March quarter saw a significant jump in new announcements. The fall is 39.7% for the public sector when compared to the same quarter last year. Private sector announcements of new projects are up 51.59%.

The sectors with the most new project announcements include manufacturing, services (other than financial) and electricity.

The new project announcements that CMIE captures only refer to the announcement of an intention to invest. This means that important procedural bottlenecks such as clearances or the acquisition of land are yet to be addressed. Funds may also not have been sewed up.

The global environment continues to be difficult on account of issues such as Brexit (Britain’s exit from the European Union) and lacklustre economic growth.

How announcements translate into execution on the ground will be closely watched.

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