Investments in projects remained elusive in the first quarter of the financial year 2016-17 with stalled projects running into an estimated Rs 11.2 lakh crore.
About three-fourths of them came from the private sector, and they were stalled due to excess capacity and high debt levels.
The stock of stalled government projects, which are continuing to drive investments in India, peaked at Rs 2.8 lakh crore.
While the lack of regulatory clearance and inadequate input availability explained the delays for 42% of stalled projects, weak business sentiment (lack of investor interest, lack of funds, and unfavourable market conditions) accounted for 28% of the stalled projects.
Most of the stalled projects are in the electricity (31%) and steel (25%) sectors, according to the Centre for Monitoring Indian Economy (CMIE), in a report put out by Standard Chartered Bank (Stanchart).
Anubhuti Sahay, head - South Asia economic research, Stanchart, said, "Private investment remains muted, despite interest rate cuts in the past 18 months, inflation and currency stability, and a significant improvement in the pace of project approvals. This indicates that headwinds such as excess capacity and high leverage continue to weigh on private-sector business confidence."
Increased public investment spending in 2015-16 and 2016-17 (budgeted) has so far failed to "crowd in" private-sector investment. "We think a recovery in private-sector investment will take time, based on our analysis of past cycles, the current challenging environment and fiscal constraints on the government," said the Stanchart report.
Investment and new announcements slowed sharply. Incremental projects under implementation slowed in the first quarter of 2016-17. The fourth-quarter moving average of projects under implementation declined to Rs 1 lakh crore in the first quarter with government being the sole driver of investment.
The central government accounted for 90% of incremental projects under implementation in FY16, as private sector investment fell during the year according to data collated by CMIE.
D K Srivastava, chief policy adviser, EY India, said, "The private sector is burdened with excess capacity. It is unlikely to be utilised any time soon as the global demand is also slowing."
The stock of stalled projects has nearly tripled since fiscal 2011, indicating significant distress in the private sector. While the stock of stalled government projects seems to have peaked at around Rs 2.8 lakh crore in the first half of fiscal 2016, while the stalled projects in the private sector continue to increase.
Even in the first quarter, 2015-16, when the government's stalled projects declined marginally, those in the private sector continued to rise. About 56% of total stalled projects are in the electricity and metals sectors.
Regulatory clearance bottlenecks and input availability was the main reason for the 42% project delays in the private sector, while weak business sentiment resulted in 28% of project delays, up from 14% in fiscal 2012, indicating weak demand and excess capacity. A much lower proportion of projects now stalled due to land acquisition issues (10%) compared to 17% in fiscal 2012.
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