about 1 year ago
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Irrespective of what the IIP or various rhetoric from politicians, the latest report from CMIE is pretty telling; it tells us about the ground reality and that fact that all the growth we see is thanks mainly to the Govt; the private sector is holding back.

Take a look at the following insights from the CMIE report:

New projects worth Rs.1 trillion announced in the December quarter, a fall of 53% (QoQ) and 55% (YoY) down.

New private sector projects fell 62% (QoQ) in Q3 and was down 64% (YoY).

New public sector projects fell 37% on quarter and 41% on year -  the lowest level since December 2004.

The value of stalled projects in Q3FY19 was at Rs 3.07 lakh crore, second highest since March 2018 figure of Rs.3.45 lakh crore.

In terms of stalled projects - power and manufacturing sectors were worst.

Power sector accounted for 35.4% of all stalled projects, while manufacturing accounted for 29.2%.

The biggest reason for stalled projects - lack of funds.

Other reasons are – raw material/feedstock problem, unfavourable market conditions, land acquisition, lack of environmental clearances and non-environmental clearances, lack of promoter interest.

A steady worsening of the investment climate has slowed down the completion of projects.

Growth in demand has lagged growth in capacity creation and as a result, capacity utilisation rates have remained low for a prolonged time.

The rate of completion, i.e. the ratio of projects completed to total projects under implementation has been falling steadily. The twin shocks of demonetisation and GST seem to have impacted the rate of completion.

It is very likely that 2018-19 could end up with completions that are lower than they were in 2017-18.

Completion of projects of the order of Rs.5 trillion a year is very low compared to the total value of all projects under implementation, which is Rs.109 trillion.

This is not finger pointing but something we need to be aware of as we have entered into a year of populism taking over economics.

This declining trend is not going to correct itself suddenly as political uncertainty now takes center stage and this will bring down investments even more. 2019 will essentially be a year of wait-and-watch, especially for the private sector. If state Govts continue to cut down capex spending to fund populistic measures like farm loan waivers, well, 2019, at least on the ground will be tough.

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