The sustained progress in putting stalled projects back to work is key to reviving investment activity, according to the Reserve Bank of India (RBI).
Banks hope that stalled projects that will come on-stream will help grow credit. Arundhati Bhattacharya, chairman of State Bank of India (SBI), said in a press conference after policy, "We expect the stalled projects to come on stream in the next three quarters. Right now, the credit and deposit growth are slow. Brownfield expansions are happening which is creating some demand for credit but nothing significant.
Efforts to put stalled projects back on track could also crowd in new investment and provide a much-needed stimulus to aggregate demand, according to the apex bank.
"So far, however, surmounting this gridlock has proved formidable as a number of factors are driving the time overruns in project implementation, including land acquisition, forest clearance and supply of raw material. Yet another binding constraint is the energy sector outlook with uncertainty regarding coal supply," RBI said in the monetary policy report released along with the fourth monetary policy document.
Besides igniting stalled projects, the government is also looking at the coal sector to revitalise the industries by making coal available in the country more accessible to industry after the Supreme Court cancelled 214 coal blocks on the grounds that the mines were allotted in an arbitrary and non-transparent manner.
Raghuram Rajan, governor, RBI, said in the post policy press conference, "We are following the coal issue very closely. While the size of the stressed assets in the system is large, we have to take action to put these stressed assets back on track. Of course, a significant attempt to address fundamental weaknesses in that sector and to get coal flowing again, consistent with the high reserves that we have could be the silver lining in this whole issue.
"We (have to) deal with the problem once and for all with major reforms in the coal sector which then make coal more available to the country for the growing needs. But we have to see how the legacy of the past is dealt with."
Monetary policy document says that revival of stalled projects and the space created for private enterprise by ongoing fiscal consolidation should support a stronger step-up in the growth momentum in an environment of steady disinflation. "The prospects for reinvigoration of non-agricultural growth are expected to improve only gradually, gathering momentum in the fourth quarter of 2014-15. Looking forward into 2015-16, the likely firming up of export growth and investment demand should support both manufacturing and service sector activity."
For 2014-15, real GDP growth is projected to lie between 5% and 6%, with a central estimate of 5.5%. This projection remains unchanged from the April projection with a better than expected industrial growth compensating for the likely decline in agricultural growth. GDP growth for the fourth quarter of 2014-15 is projected at 5.6%, with a 50% confidence interval of 5.1% to 6.1%, according to RBI estimates.
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