Investment In New Projects Is Slowing Down
Despite higher economic growth, the
slowdown in industrial investment in the last five years is a major concern.
New projects are fewer. While the government is busy selling its stake in the
country’s most reliable public sector enterprises, the private sector is not
investing enough in the areas such as infrastructure, large-scale industry,
housing, manufacturing, mining and metals. The domestic manufacturers are
struggling to fully utilise their existing capacities in the face of growing
imports. The record foreign direct investment in the last four years had little
impact on the manufacturing sector as a substantial part of it went into merger
and acquisition (M&A) of Indian companies by foreign investors. It may not
be that the government is unconcerned. But, it actions or policies have failed
to deliver.
Take, for instance, the coal
sector. The coal demand for the thermal
power sector, its major consumer, in 2018 far exceeded the local supplies. As a result, the country’s
coal import during April-December, 2018 stood at nearly 172 million tonnes,
representing almost 25 per cent of domestic production. Sadly, the domestic
coal industry failed to implement new projects worth over Rs.11,000 crore. The
total investment in all pending coal projects are worth over Rs. 35,000 crore.
There are no convincing explanation on what are stalling the new coal projects
when the coal demand is constantly growing. India’s total coal production is
less than 700 million tonnes as against China’s three-billion-plus tonnes.
While the government itself is in the
industrial investment exit mode, not many domestic private sector entrepreneurs
barring a few few business houses such as Tatas, the Mukesh Ambani group,
Mahindras, Adanis and Jindals, have shown much interest in local industrial
expansion. The share of private investments in infrastructure has fallen to a
10-year low of around 25 percent in the fiscal 2018. Its share dropped almost
six per cent in the last five years compared to the period between 2009 and
2014. However, investment analysts say the industrial investment growth has
been downward ever since 2004, after the exit of the Atal Behari Bajpayee-led
government. The policy focus of the subsequent governments failed to pep up the
new industrial projects and investments in the last 14 years, during which the
services sector showed an exponential growth, eclipsing the manufacturing and
industrial sectors.
According to the Centre for Monitoring
Indian Economy (CMIE), new project investments have been the lowest in 12
quarters at about Rs.100,000 crore during the quarter ended December 31, 2018,
indicating a slowdown in the Indian economy. Others said the number is the lowest in 14 years, since mid-2004. The
CMIE report said while the private sector capital expenditure remained sluggish
as companies continued to focus on pruning balance sheets and deleveraging, the
numbers came as a surprise because the government/public sector investments
also did not seem to be enough to move the needle. The new investments have declined
over 55 percent on a year-on-year basis, while sequentially it has fallen
nearly 53 per cent. The most disturbing part is the number projects announced
but not implemented. Investments stalled in such projects stood at a record
level of over Rs.300,000 crore. This is much higher compared to the figure of
Rs 15,486 crore in the three months ended December 2017, as well as compared
with Rs 25,298 crore seen during July-September 2018.
Reports showed that the value of all
stalled projects at the beginning of 2018 rose to a record level of nearly
Rs.14 trillion. The private sector accounted for over two-thirds of the value
of these stalled projects. The percentage share of the value of stalled private
sector projects is the highest since March 2004. Interestingly, power projects
continue to dominate stalled projects, accounting fro over 39 per cent. The
next came the stalled manufacturing units. Other sector-wise areas of stalled
projects include mining, services, construction and real estate. Such high level
stalled projects dampened the spirit of announcement of fresh projects,
especially in the private sector.
The present government, despite its
so-called focus on ‘Make-in-India’, failed to improve the implementation rate
of new projects to restore the confidence of the private sector in new
investment in domestic production. Instead, the demonetisation of high-value
currencies, followed by an under-prepared
implementation of a four-level goods and services tax (GST) system,
which kept the most important oil sector out of its ambit, may have further
impacted fresh industrial investment in the country. Revival of stalled
projects is extremely crucial for sustained economic recovery.
Although the manufacturing industry’s
order book position had improved in the last two quarters, capital goods and
heavy engineering majors seem to feel
that the operational environment in India still remains challenging. Fresh
investments in the power, coal, steel, cement, mining, refinery
expansions, railway modernisation and
expansion, highways and shipping can
change the environment. Unfortunately, they are unlikely to gather speed until
the next government is installed.
In fact, the implementation of stalled
projects should receive the top economic priority of the next government. This
will automatically increase the GDP growth, putting the country’s industry and
economy on top gear. The employment market will boom once again, ensuring a
steady growth of income, demand and supplies. There is no better way to serve
the economy than creating strong bases for industry and agriculture.
Fortunately, the country is doing reasonably well in agriculture. Economic
agenda and financial ecosystem need to be reset now to achieve higher growth.
According to top industrial entrepreneurs, India’s mining industry’s share of
its GDP alone has the potential to quadruple, from 2.5 percent to 10 percent of
GDP. Thus, the pending new projects, if implemented without much delay, have
potential to raise the country’s GDP growth to 8.5 per cent in another two to
three years. (IPA Service)
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