New project announcements shrink 33% to Rs 2.8 trn in Q4 of FY18

New project announcements witnessed a sharp contraction of 33.4 per cent in the Q4 of 2017-18 to Rs 2.8 trillion as against Rs 4.2 trillion in the same period of FY17. On a quarter-on-quarter basis, the fresh project announcements more than doubled the figure of Rs 1.3 trillion in Q3 of 2017-18.

A bulk of the new project announcements in the March quarter of 2017-18 were in electricity, transport services and chemicals & chemical products, says a report from ratings agency Icra.

Completion of previously announced projects also showed a downtrend as it shrunk by 30.9 per cent year-on-year (y-o-y) in Q4 of FY18 after expanding by 8.8 per cent in Q3 of the same fiscal. Value of projects commissioned in Q4 was Rs 1.4 trillion, the slide being led by the private sector, the report adds.

Value of revived projects, too, was tepid at Rs 0.2 trillion in Q4 of FY18, down from Rs 0.9 trillion in the corresponding period of FY17. In addition, the projects stalled in the period under review surged 262.5 per cent y-o-y to Rs 3.4 per trillion from Rs 0.9 trillion. For the sixth consecutive quarter, the value of stalled projects outpaced projects that were revived.

The macro data on new project announcements and completion pose a striking contrast to the figures in capacity utilisation and gross fixed capital formation (GFCF). 

 
According to the latest available figures, in Q3 of FY18, the capacity utilisation posted an uptick to 74.1 per cent in Q3 from 71 per cent in the comparable period of the previous fiscal. The rise in capacity utilisation was supported by a favourable base effect, pickup in volumes and a catch up effect following the subdued first half of FY18. Icra estimates the capacity utilisation to have picked up in Q4 of last fiscal as well, bolstered by healthy volume growth, especially in sectors like auto and cement. The buoyancy in auto sector and domestic demand led to spike in steel capacity utilisation to over 80 per cent in FY18. Although the risk of trade wars loom, the steel sector is poised to maintain this capacity utilisation level aided by the Government of India’s thrust on infrastructure. For cement sector, housing and infrastructure are expected to shore up demand in FY19 but supply addition will keep capacity utilisation moderate. Load factor at thermal power plants showed a modest improvement to 65.3 per cent in May 2018 from 64.9 per cent in April 2018 but further improvement is likely to be crippled by capacity addition in renewable sources and pick up in hydro and wind power generation as monsoon peaks.

The outlook for capacity utilisation is bullish in Aprl-September period of this fiscal as a pickup in consumption growth will lead capacity utilisation growth. The Icra report, however, does not endorse a broad-based capacity addition by the private sector until the second half of FY19.

GFCF rose sharply to 14.4 per cent in Q4 of FY18 from six per cent in the same period of 2016-17, much in line with the trend in capital goods output.