Has the Modi govt succeeded in unclogging stalled projects?

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When the Narendra Modi-led government was sworn in mid-2014, there were great expectations from a government that had won a decisive mandate from the electorate.

Most investors expected the government to put an end to an era of policy paralysis and help kick-start a new wave of investments in the economy. So far, the record has been mixed, data from the Centre for Monitoring Indian Economy Pvt. Ltd (CMIE) shows.

While the number of new project announcements has gone up, so has the proportion of stalled projects.

A Mint analysis of CMIE capex figures shows that year-end stalled project figures for 2016 are at their highest levels since December 1995, making it the worst year-end on record.

CMIE provides quarterly statistics on stalled projects. December quarter stalling figures were considered for this analysis to compare calendar year trends. The total value of stalled projects has reached Rs11.70 trillion in the December quarter, accounting for 12.11% of the total projects under implementation.

The proportion of stalled projects rose to double digits in 2013, and those figures have consistently been in double digits since then. This holds true even if we consider data for each quarter rather than just the year-end figures. Four out of the worst five quarters with the highest stalling rate on record have been during the Modi government’s tenure.

The picture appears brighter if we consider the annual figures for new project announcements. The rolling four-quarter-average amount of new projects in 2016 at Rs2.08 trillion was 19.7% higher than the corresponding figure for the year-ago period. The absolute value of new project announcements shows that 2016 ranks second best among the last five years. Yet, compared to the levels of new project announcements witnessed between 2006 and 2010, last year’s figures appear relatively modest.

It is worth noting that data on new project announcements only track a firm’s intention to invest. This means that the company may not yet have got the clearances it needs, or secured the funds required for executing the project. This is what has happened to nearly a fifth of all private sector projects, the data shows.

A fifth of stalled projects are held up because of lack of government clearances. Lack of environmental clearances is holding up 14.48% of stalled projects. Non-environmental clearances account for another 6.46%. These government clearances started emerging as a major issue in the December 2010 figures when the proportion of projects stalled because of the delays in such clearances climbed to 18.63%. This proportion has remained consistently high since then, and the change of government at the Centre does not seem to have made much of a difference.

The proportion of projects stuck because of land acquisition problems has shown a modest decline. Worryingly, the proportion of projects shelved because of ‘lack of promoter interest’ has risen over the past few years, as the chart above shows.

At a time when new project announcements seem to have taken a hit after the demonetisation announcement , it is imperative for the government to do its part in reviving the animal spirits of Indian industry. It can do so by raising the level of public investments, and by expediting clearances which continue to be the major hurdle in the path of new projects.