Mumbai: New capex announcements declined for the second time in a row in the just-ended September quarter, suggesting that the animal spirits of Indian industrialists have been subdued by domestic and global headwinds. Fresh data released by the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows that Indian companies announced new projects worth ₹ 1.49 trillion in the quarter ended September, down 41% from the previous quarter, and 12% lower than in the same period last year (chart 1).
The sustained decline in capex announcements was led by a sharp decline in new project announcements by the private sector. New private sector projects fell 64% in the September quarter compared to the June quarter. Compared to a year ago, they were 31% lower.
New public sector projects showed an improvement over the June quarter. From nearly a six-year-low in the June quarter, new public sector projects increased 64%. However, the value of new public sector projects in the just-ended quarter is about 2% lower compared to the same period last year.
Despite the rise in public sector project announcements, which exceeded the value of private sector project announcements for the first time in four quarters, overall capex numbers continue to disappoint.
One silver lining is the rise in new projects in the manufacturing sector, which witnessed a sharp recovery from the lows of the June-ended quarter. Yet, the value of new manufacturing projects in the September quarter is lower than what it was in the March quarter (chart 2 ).
The CMIE data also shows that projects under implementation saw increased stalling in the just-ended quarter. The increase in stalling rate in the quarter was entirely on account of the private sector, where the stalling rate remains near all-time highs.
Stalling rate is calculated as a percentage of the total projects under implementation so that the values are comparable across time. As much as 11% of all projects under implementation remain stalled, while 24% of all private sector projects remain stalled. In comparison, only 3% of government projects remained stalled (chart 3 and 4 ).
Mining, power generation, and real estate and construction, which were key drivers of the capex cycle during India’s last boom (2004-08), are now stuck with a large amount of unproductive assets in the form of stalled projects.
The power and manufacturing sectors remained the worst affected by stalling. The power sector accounted for 35.5% of all stalled projects while manufacturing accounted for 29.5%. The biggest reasons for stalling are lack of funds, problems with fuel and raw material and unfavourable market conditions (chart 5 ).
Lack of funds and unfavourable market conditions have become much bigger constraints today compared to even two years ago (bit.ly/2IxMFuM). If lack of clearances were the major stumbling block for projects in 2016, lack of funds and unfavourable market conditions are the leading road blocks today, with their combined share in stalled projects rising eight percentage points over the past two years to 23% in the September quarter.
This suggests that the combined effects of the bad loans crisis, the rise in global lending rates, and the ongoing sell-off across emerging markets have dealt a body blow to the financing and risk-taking ability of Indian companies.
The rise in domestic and global economic uncertainties over the past few months combined with rising political risks ahead of the general election in 2019 will likely dampen the appetite for fresh investments among Indian companies in the coming months.