MUMBAI: In a season of bad news, the Centre for Monitoring the Indian Economy (CMIE) has sprung a pleasant surprise. In its latest data, the research body has said projects worth Rs 4 lakh crore were completed in FY12, the highest in the last few years. In the previous couple of years, the corresponding numbers were Rs 3.4 lakh crore and Rs 3.8 lakh crore, respectively.
There’s more good news: the existing pipeline of projects is strong enough to sustain for the next several years. And, FY12 has seen a dramatic pick-up in completion of some of those outstanding projects. According to CMIE, at the end of March 2012, outstanding investment in projects amounted to Rs 140 lakh crore. That is six times the country’s annual gross fixed capital formation. The pipeline of outstanding projects is so large that even if no new project is announced for the next four-five years, the Indian economy can continue to grow at a brisk pace.
It is for this reason that the completion of outstanding projects is a far more critical number to watch out for than new projects. There’s no doubt that outstanding investments may, however, continue to rise but at a slower pace, if completion and execution pick up.
In all the noise about a slowdown in new investments, this pick-up in project completion has gone unnoticed. Typically, almost 50 per cent of projects slated for completion in a fiscal year are actually completed. Commenting on this trend, Mahesh Vyas, managing director and CEO of CMIE, told Business Standard, “All the projects getting completed are because they were a work in progress since 2005. These are getting completed as pending issues are getting cleared and projects getting on track. This is an automatic process and will continue for the next few years.”
Data compiled by CMIE suggest the total completion during FY12 is estimated to have been around Rs 4 lakh crore. This would be the highest project completion seen by the industry in a single year. From Rs 66,187 crore in 2003-04, project completion has increased to Rs 3.8 lakh crore in 2009-10. It then moderated a bit to Rs 3.4 lakh crore in 2010-11. CMIE’s analyst team expects the number to double to Rs 8.3 lakh crore in 2012-13, if the completion rate goes up to 100 per cent.
Given the issues faced by the corporate sector, not many are convinced by the pick-up in activity.
A Subba Rao, CFO of GMR, said, “The slowdown in investment is a ground reality on Wednesday. Across all sectors, everyone is wondering how to translate projects in the pipeline to execution. In infrastructure, power sector has the potential to attract the most investment, but it is plagued with problems. Going slow on new projects is a natural consequence to these problems.”
Debashish Mishra, senior director, Deloitte Touche Tomatsu, believes, “There has been a slowdown in infrastructure investment. Many projects initiated earlier are stuck in environment and other clearances. Earlier, the Planning Commission was hoping infrastructure spending would be $120-150 billion annually. We would be lucky if we get around $60 billion this year.” There’s little progress on infrastructure bids like ultra mega power projects or theNaviMumbaiAirport.
Bankers, too, have a similar take on the subject. The head of the corporate banking division of a private bank said, “I feel the investment-commissioning numbers could be on the higher side.” On the ground level, there are several issues. For one, both debt and equity are not easily available for companies in this environment. Then, project execution has suffered significantly because of a policy paralysis, environmental and other issues. And, no external debt is available either. “Both buyers and suppliers’ credit has slowed down,” the banker added.
A lot depends on how serious the government is about reviving the investment cycle. If decision-making picks up and the existing pipeline of projects gets completed, growth would be aided.