New Delhi: An increase in the number of stalled projects for three consecutive quarters has brought them to their highest level since Narendra Modi assumed office as the prime minister in May 2014. Stalled projects refer to those which were under implementation but were then halted. According to the latest data released by Centre for Monitoring Indian Economy (CMIE), the percentage share of stalled projects in total projects has risen to 12.3% for the quarter ending March 2016. To be sure, these figures might change later. For example, while current data shows that 11.8% level of March 2014 was breached in the December 2015 quarter itself by 0.1% point, the figure was 11.8% when the numbers were first released in January for the December 2015 quarter. It was the June 2015 quarter which saw a reversal in trend, when the share of stalled projects started increasing again.

The March quarter saw the value of these stalled projects rise to 11.36 trillion from 10.79 trillion in December. The increase in stalled projects is primarily on account of private sector, where more than one in five investments are stalled. In the government sector, the ratio of stalled projects is slightly more than one in 20.

A sector-wise break-up of stalled projects shows that manufacturing continues to have the biggest pie among such projects. Over two-thirds of the stalled projects in the manufacturing segment are in the metals space. Manufacturing is followed by electricity. Put together, these two sectors constitute more than two-thirds of stalled projects and have also experienced an increase in their contribution to stalled projects.

Chief among the reasons for stalling is land acquisition, accounting for 17.21% of the value of stalled projects. Promoter apathy accounted for 12.79%. Fuel, feedstock and raw material supply problems accounted for 10.95% of stalled projects. Other issues included lack of environmental and other clearances, unfavourable market conditions and lack of funds.

There is a silver lining amid the gloomy picture on account of stalled projects. Despite an increase in stalled projects, new investment announcements are not stopping. The figure doubled itself between December 2015 and March 2016. Also, it is the private sector which is leading the way in making new investment announcements. Similarly, a sector-wise analysis shows that manufacturing saw the highest new investment announcements. Among important new project announcements are 23,500 crore thermal power generation project in Andhra Pradesh, 20,000 crore petrochemical plant in the eastern petrochemical hub of Haldia and a Liquid Crystal Display (technology used in Television and computer screens) manufacturing projects of similar value in Maharashtra are notable.

One clarification: new project announcements only reflect an intention to invest and do not guarantee that they have the required clearances or financial resources to translate it into reality. This explains the fact that despite there being an increase in project announcements, the number of stalled projects has not come down in the last few quarters. A 13 March 2016 Morgan Stanley report, titled ‘India: Tepid Recovery Expected as External Headwinds Persist’, pointed to factors including weak external demand conditions and low capacity utilisation for slow recovery in private capex. This affects corporate sector profitability, which in turn limits the appetite for capex, said the report authored by analysts Chetan Ahya, Upasana Chachra and Gaura Sengupta.

The trend is also not entirely explained by a bearish commodity market environment, noted HSBC Securities and Capital Markets chief India economist Pranjul Bhandari and economist Prithviraj Srinivas.

“...we find that while commodity related aluminium and natural gas distribution have seen a rise in stalling, so have other sectors such as electricity generation and shipping. In short, the increase in stalling is generalized; across both commodity and non-commodity projects," they said in their 5 January report, analysing December quarter data. The analysis holds for the latest results as well.