Mumbai: There is little progress in the unclogging of stalled projects. At the end of the September quarter, the stock of stalled projects amounted to 9.9 trillion compared with 8.8 trillion three months earlier, data from the Centre for Monitoring Indian Economy show. This breaks a trend of improvement over the last four quarters.

The numbers refer to those projects which were under implementation but got stuck along the way owing to problems over land acquisition, lack of clearances and so on. CMIE considers these to have a higher chance of revival.

Economists say a sustainable economic recovery hinges on a revival in investment demand. In the boom years leading up to 2008-09 when India’s economic output grew at 9% plus rates, gross fixed capital formation rose in double digits.

Land acquisition remains the largest reason why projects are stuck. On the other hand, fewer projects are stalled now for lack of clearances. There has been a significant improvement, especially in environment clearances (see chart 1C).

However, an increasing number are stalled because of unfavourable market conditions and lack of promoter interest. The increase in the stalled projects stock has come from the manufacturing sector. That is perhaps not surprising, given the amount of slack in the sector. Capacity utilization is less than 75%.

Rural demand is lukewarm and external demand is dipping. It is no wonder promoters are unwilling to commit more money to building new factories.

The stalling rate—defined as stock of stalled projects as a percentage of projects under implementation—thus inched up to 11.1% in the September quarter compared with 9.9% in June.

It is important that the stock of stalled projects is whittled down. For one, it will free up resources which could lead to more new projects and potentially boost investment demand. Secondly, it will also bring some relief to the balance sheets of banks which are under much stress from bad and restructured loans.

Thus, it is all the more surprising that there has been a spike in new project announcements during the September quarter. This number rose sharply to 3.5 trillion compared with 1.2 trillion and 2.5 trillion in the two previous quarters.

The second interesting point is that this new investment interest has come mainly from the private sector. Corporate earnings have been lacklustre, firms are highly leveraged and are struggling to cover their interest costs. Yet, manufacturing private firms have led the way with new project announcements of 1.64 trillion. Still, there were no single big project like Indigo’s 1.5 trillion expansion in December 2014. The largest project was Vedanta’s 40,000 crore LCD panel project. Similarly, in the services sector, the single largest project was a road building one worth 30,000 crore.

It should also be noted that new projects as captured by CMIE merely refer to the announcement of an intention to invest. Typically, the project will have not received important clearances or land will not have been acquired and the sources of funds or collaborators may not have been finalized.

If macroeconomic conditions remain the way they are, there is a good chance that these new announcements will remain just that and not take off on the ground.

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