Over the last 12 months, the overwhelming reason for projects getting stalled was the lack of promoter’s interest in implementing them. This factor overshadowed the more predictable systemic reasons for project delays — including land acquisition problems, lack of environmental clearance and raw material or feedstock unavailability — and accounted for over a fifth of the 598 projects that were reported to be stuck last fiscal.
Data collated by CMIE (Centre for Monitoring Indian Economy) on stalled projects — comprising a large sample of firm-level public and private investment data, balance sheet reports and survey of companies, and the timeline of projects — showed that the lack of interest by promoters to invest held up a total of 132 projects with investments worth Rs 69,600 crore last fiscal.
As compared to this, land acquisition problems led to a shelving of 45 projects while raw material or feedstock unavailability resulted in scrapping of 20 projects.
The ticket size of projects held up due to land acquisition issues and the lack of fuel was, however, comparatively higher that those held up due to the lack of promoters interest, with investments worth Rs 90,100 crore estimated to be held up due to lack of requisite land and those stalled for want of fuel entailing investments worth Rs 1 lakh crore. Delay in getting environment clearances, one of the other major reasons for stalled projects during the last couple of years, accounted for the scrapping of just eight projects during 2014-15, entailing estimated investments of Rs.20,700 crore.
Interestingly, the split between private and public sector projects shows a divergent trend. While unfavourable market conditions, and not the lack of regulatory clearances, explained the stalling of a majority of projects in the private sector, the bulk of the projects stalled in the public sector was attributed to regulatory reasons.
The data showed that the manufacturing sector took the biggest hit with investments worth Rs 2.14 lakh crore dropped, spread across 178 projects. The power sector, the thermal side of which has been struggling for feedstock such as coal and gas, witnessed the nixing of 32 projects with investments worth Rs.1.10 lakh crore. Among states — the non-industrialised states led the list of those reporting an over 10 per cent stalling rate — defined as the stock of stalled projects as a percentage of those under implementation in terms of value of projects. Up to the third quarter of 2013-14, West Bengal, Himachal Pradesh, Odisha, Jharkhand, Uttar Pradesh and Chhattisgarh figured in the top six of the CMIE list of states with the highest proportion of stalled projects during the last quarter of 2014-15.
In all, fiscal 2014-15 witnessed projects worth Rs 4.80 lakh crore shelved, lower by 28 per cent over 2013-14. The decline in stalling of projects in 2014-15 can be attributed to a large base of projects stalled in 2013-14. Projects stalled at Rs 6.6 lakh crore in 2013-14 was highest in the past 18 years. The worrying factor, though, is that the majority of projects held up in 2014-15 was on account of the lack of promoter interest, a harbinger of the investment sentiment continuing to be negative. Reflecting this, Nomura, in a research note earlier this month, had pointed to some revival in stalled projects, even as these revived projects only made up a small proportion of overall investment and therefore, new investment needing to continue to accelerate to create a stronger foundation for sustainable growth.
“Clearing the top 100 stalled projects will address 83 per cent of the problem of stalled projects by value,”a CMIE executive said.
On April 7, the RBI had indicated that banks may extend the date of commencement of commercial operations (DCCO) of a stalled project by up to two years in case its ownership changed hands. This, it said, was being done on the basis of representations from banks that new promoters or developers of a stalled project may require time to revive or complete the stalled projects. “It has been decided that in cases where, in the assessment of the banks, the implementation of the project has been stalled primarily due to inadequacies of the existing promoters and a subsequent change in the ownership of the borrowing entity has been effected, banks may permit extension of DCCO up to a further period of two years,” RBI said in its April 7 notification.
Average quarterly stalling of projects which hovered around Rs 19,400 crore in the period between 2000-2009, rose steeply after the global liquidity crisis in 2009-10. Large projects that were announced in abundance during the investment boom period of 2004-05 to 2008-09, were being scrapped post 2010-11. The quarterly average stalling of projects accelerated to Rs1.43 lakh crore in 2011-12, Rs 1.1 lakh crore in 2012-13 and peaked at Rs 1.60 lakh crore in 2013-14.
Project Watch: 8,500 km to be awarded for roads
The Ministry of Road, Transport & Highways (MoRTH) is looking at awarding 8500 km of road development projects in the current financial year, nearly half of which would be executed under the new ‘hybrid annuity’ model. The 40-km Nagpur Bypass, which falls in the constituency of roads minister Nitin Gadkari’s constituency, will be the first project to be developed as a 4-lane highway under the new ‘hybrid annuity model’.