New projects surged 37.4% to Rs 4.26 trillion in Dec quarter: Report

Topics infrastructure | projects

There has been an increase of over a trillion rupees in new projects from October to December 2019, compared to the same 3-month period year-ago.

New projects worth Rs 3.1 trillion were seen in December 2018. This has risen by 37.4 per cent on a year-on-year basis to Rs 4.26 trillion, showed data from project-tracker Centre for Monitoring Indian Economy (CMIE). The body releases capex data at the end of every quarter. 

It also showed that the proportion of ‘stalled project’ is down 81.8 per cent to Rs 0.58 trillion. Completed projects remain at the same level, with numbers for December 2018 at Rs 1.37 trillion. It is Rs 1.36 trillion in December 2019.

Interestingly, the rise in new projects is despite a fall in capacity utilisation. It was at 68.9 per cent in the September quarter according to the Reserve Bank of India, as noted in its December 19 Monetary Policy Committee Meeting minutes. It was at 73.6 per cent previously. A similar decline is seen on a seasonally adjusted basis as well.

"Seasonally adjusted CU (Capacity Utilisation) also fell to 69.8 per cent from 74.6 per cent during the same period,” it said. This means that companies are increasingly unable to use their existing production capacity, which gives them limited incentive to invest in adding capacity. This has weighed on capital goods companies which benefit when companies invest in new factories.

Marquee capital companies such ABB India and Siemens are seeing lower demand, noted brokerage firm Motilal Oswal Financial Services. Order flow growth fell to 5 per cent for ABB in recent data. Siemen’s order inflow fell 14 per cent. This in turn is said to be because of a slowdown in other markets such as auto, food and beverages, said the 6th December Sector Update report authored by research analysts Nilesh Bhaiya and Pratik Singh.

The government has sought to push investments of its own. Finance Minister Nirmala Sitharaman chalked out a Rs 102-trillion infrastructure investment plan on Tuesday, some of it already in progress.

Infrastructure projects currently face multiple headwinds, according to the Report of the Task Force on the National Infrastructure Pipeline released on the last day of the year.

“The major constraints faced are availability of funds for financing large projects, lengthy processes in land acquisition and payment of compensation, environmental concerns, time and cost overruns due to delays in project implementation, procedural delays and lesser traffic growth than expected, increasing the riskiness of the projects resulting in stalled or languishing projects and shortfall in funds for maintenance,” it said.

It has sought to address some of these issues through financial sector reforms such as promoting the development of bond and credit markets for easier access to the capital required for completing such projects, better monitoring mechanisms and by creating an enabling environment overall through ironing out of environmental and sustainability issues.

Meanwhile, analysts have been hopeful of a turnaround in order inflow too.

“...the medium-term opex-related opportunities appear promising, given the faster adoption of such products…(and)…services and cost savings led by preventive maintenance for end-market players. Given the short cycle nature of such orders, inflows will bounce back sharply as the economy recovers, in our view,” said the Motilal Oswal report.

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