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Adviser MONEY MAKING MC
04 July 2016
Actual and announced investment slowed significantly in
first quarter (Q1) of FY17, pulled lower by the private sector. Investment in
projects under implementation across sectors also slowed in Q1-FY17 with the
value of stalled projects remaining near an all-time high while there was no
significant rise in stalled projects during the quarter. Fiscal constraints,
weak demand and a leveraged private sector to keep the investment revival slow
over coming quarter, says a research report.
The Total Investment & Insurance Solutions
In a note, Standard Chartered Bank (StanChart) says,
"Despite interest rate cuts in the past 18 months, inflation and currency
stability, and a significant improvement in the pace of project approvals,
private investment remains muted. This indicates that headwinds such as excess
capacity and high leverage continue to weigh on private-sector business
confidence. Increased public investment spending in FY16 and FY17 (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."
According to the report, during Q1, the value of stalled
projects remained high, at Rs11.2 lakh crore as against Rs11.3 lakh crore in
FY2016, with the bulk of them or around 75% in the private sector. It says,
"Central government remained the biggest driver of investment growth,
while private-sector investment fell in Q1-FY17. Lack of regulatory clearance
and inadequate input availability explained the delays for 42% of stalled
projects, while weak business sentiment including lack of investor interest,
lack of funds, and unfavourable market conditions, accounted for 28%. Most of
the stalled projects are in the electricity (31%) and steel (25%)
sectors."
The Total Investment & Insurance Solutions
About 56% of total stalled projects are in the
electricity and metals sectors, StanChart says, adding, "Regulatory
clearance bottlenecks and input availability (combined) was the main reason for
project delays in the private sector, at 42%. Weak business sentiment explained
28% of project delays, up from 14% in FY12, indicating weak demand and excess
capacity. A much lower proportion of projects is now stalled due to land
acquisition issues (10%) compared to FY12 (17%)."
The Total Investment & Insurance Solutions
The Centre for Monitoring Indian Economy (CMIE) data
shows that the signs of a pick-up in the investment cycle, especially in the private
sector, remained elusive in Q1-FY17.
StanChart says, "The decline in Q1-FY17 would have
been sharper had it not been for the announcement of a large steel plant,
contributing about 15% of the total value of announced investments during the
quarter, although this was by a company recognised by Indian banks as stressed.
The slowdown in new announcements in Q1-FY17 is a concern, as new project
announcement and projects under implementation (PUIs) have a positive
correlation."
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