A public sector-led boost has led to a mild recovery in new project announcements in the September-ended quarter but private sector capex announcements continue to hover near historic lows, fresh data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows.

Overall, Indian companies announced new projects worth ₹95,300 crores in the quarter ending September 2019, a 16% increase compared to the June 2019 quarter but a 59% decline compared to the year-ago period. The June quarter marked a historic low for capex announcements and despite the improvement in the September quarter, the value of capex announcements is still second-lowest in fourteen years. The private sector investment slump only deepened in the past quarter, with new private capex announcements falling to a 16-year-low.

New private sector project investments fell 5% compared to the previous quarter and 70% compared to the year-ago period. In contrast, public sector projects increased by 36% compared to the previous quarter and declined by 46% compared to the previous year. As a result, for the second consecutive quarter, new government projects account for more than half of all fresh investments. These numbers are provisional, and may be revised later.

The investment slump is broad-based, the data shows. The value of manufacturing sector investment projects fell 64% compared to the year-ago period. The decline was steeper in the service sector where investment was down 82% from a year ago. An upward swing is seen only for investments in power sector projects which increased by 14% compared to the year-ago period.

The investment slowdown is linked to the persistence of stalled projects, which continue to sap the animal spirits of Indian entrepreneurs and their financiers. The value of stalled projects and the stalling rate in the just-ended quarter were at their highest levels since CMIE started compiling data in 1995. The stalling rate is calculated as a percentage of total projects under implementation so that the values are comparable across time. The private sector stalling rate in the last two quarters has remained unchanged at 26.1%, marking another all-time high.

Stalling rates in public sector projects also spiked up in the September quarter, although it still remains much lower than the private sector stalling rate.

Within sectors, the power sector has been the worst affected by stalling followed by services and manufacturing with stalling rates of 35%, 30% and 24% respectively. Taken together, these sectors account for 91% of all stalled projects.

As in the past few quarters, lack of funds continues to be a major impediment to completion of projects. Nearly 14% of all stalled projects (worth ₹1.9 trillion) are stalled because of lack of finance. The troubles of the banking and shadow banking sector appear to have cast a shadow on the financing of several projects.

The government’s moves to stimulate investments by front-loading public sector capex plans may help prevent further slowing of the capex cycle but it is unlikely to raise overall capex levels significantly. The recent corporate tax cuts may be a more effective measure to induce bigger investments over the medium term, especially in the manufacturing sector, where the cuts are deepest for greenfield investments. Yet, it may not trigger an immediate capex revival.

With mounting global uncertainties and continued stress in India’s domestic financial system, a sharp uptick in capex plans looks unlikely at the moment.

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