"It is clear that private projects are held up overwhelmingly due to market conditions and non-regulatory factors whereas the government projects are stalled due to lack of required clearances," it said.
Unfavourable market conditions and delayed investments in last few years resulted into an "alarmingly high rate" of increase in stalled projects which, as of December-end, stood at a staggering Rs 8.8 lakh crore, says the Economic Survey for 2014-15.
However, the stock of stalled projects plateaued in last three quarters to stand at 7 per cent of the GDP at the end of October-December quarter from 8.3 per cent in last year, the Survey said.
"... Manufacturing dominates in total value of stalled projects even over infrastructure. The government's stalled projects are predominantly in infrastructure.
"Unfavourable market conditions (and not regulatory clearances) are stalling a large number of projects in the private sector and in contrast, regulatory reasons explain bulk of stalling in the public sector" it added.
Manufacturing sector was stifled by a general deterioration in the macroeconomic environment, while electricity projects are victim of lack of coal.
"It is clear that private projects are held up overwhelmingly due to market conditions and non-regulatory factors whereas the government projects are stalled due to lack of required clearances," it said.
Out of the Rs 8.8 lakh crore worth of stalled projects, public and private sector accounted for Rs 1.8 lakh crore and Rs 7 lakh crore, respectively.
"Clearing the top 100 stalled projects will address 83 per cent of the problem of stalled projects by value," it added.
"At the end of the third quarter of the current financial year, for every 100 rupees of projects under implementation, 10.3 rupees worth of projects were stalled and the number of private sector stood at 16," it said.
"In terms of share in total, electricity and services dominate for both public and private sectors, while manufacturing forms the major component of stalled projects in the private sector," it added.
The stalled projects, affecting the balance sheets of corporates and PSU banks, is actually constraining the future private investment thus "completing a vicious circle".
Interestingly, despite the high rate of stalling and weak balance sheets, the equity market seems to be performing quite well, suggesting that the "stalling of the projects is indeed not having a significant impact on firm equity".
"This may potentially be due to pure political economy reason that the market is internalising the expectations of bailouts," it said.
Two "policy lessons" that can be derived from prevailing scenario are that "the expectation that the private sector will drive investment needs to be moderated" and "efforts must be made to revitalise the public-private partnership model of investment."
"In addition, serious consideration must be given to setting up an Independent Renegotiation Committee. In the presence of weak mechanisms for bankruptcy and exit, we have to think creatively about distributing pain amongst the stakeholders from past deals gone sour," the Survey added.
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