When SpiceJet Ltd announced that it would be acquiring aircraft from manufacturer Boeing Inc. last month, it was one of the few bright spots in capacity expansion for the June quarter. Overall new project announcements have plunged sharply in the quarter ended 30 June, according to the latest data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE).

The latest numbers suggest that the Indian economy is unlikely to witness a sharp turnaround in growth in the coming months. CMIE’s capex database is the most widely tracked one in the country, and is used as a leading indicator for the Indian economy.

As the chart below shows, Indian firms announced Rs1.34 trillion worth of new projects in the June quarter, taking the value of new capex announcements to its lowest level since December 2015.

One big reason why new investments are not growing fast in the country is the lack of any meaningful progress in getting stalled projects off the ground. Although the proportion of stalled projects has declined slightly, they still remain at elevated levels, and more than a fifth of private sector projects continue to remain stalled.

The proportion of stalled projects rose to double digits in 2013, during the fag end of the United Progressive Alliance’s (UPA) term because of what analysts described as “policy paralysis". But despite a change in regime and no apparent signs of such paralysis, stalling rates have not changed much. Lack of clearances continues to be among the major reasons for stalling.

The lack of meaningful progress in unclogging the pipeline of stalled projects has also contributed to India’s bad debt problem, which acts as a fetter on the animal spirits of Indian industry. A third of all stalled projects are in the power sector, for instance, which is reeling under severe stress.

Although stalling rates in public sector projects remain low, and are falling, such projects account for only a small fraction of overall capex in India’s economy. Besides, with special packages such as farm waivers increasingly taking up fiscal resources of states, the overall public spending on capex may be adversely affected in the coming months.

Within the private sector, it is services rather than manufacturing which has witnessed the biggest spurt in capex announcements in the June-ended quarter. While manufacturing projects dominated project announcements last year, this year, new manufacturing project announcements have been lacklustre, and much smaller than those in services.

Transportation and infrastructure figured high in the list of new capacity additions. The largest new project was SpiceJet’s acquisition of 20 Boeing aircraft for Rs15,129 crore. It is also acquiring 50 Q400 Turboprop aircraft worth Rs10,959 crore, the second biggest project in the past quarter. The third-biggest project announced in the past quarter was the Uttar Pradesh government’s Delhi-Jhansi Six Lane Expressway Project (Bundelkhand Expressway) worth Rs10,000 crore.

The future trajectory of capex announcements and execution will depend to a large extent on the fate of stressed sectors such as materials and power. If recent efforts to fast-track debt resolution works, and the Indian economy goes through deleveraging quickly, we could expect to see a pick-up in new investments over the next few quarters. Till that happens, we should not expect India’s growth engine to accelerate.

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