scorecardRise in under-implementation projects indicates pickup in economic activities
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Rise in under-implementation projects indicates pickup in economic activities

Rise in under-implementation projects indicates pickup in economic activities
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A rise in projects under implementation as well as a decline in the number of stalled projects point towards the fact that there is a pickup in economic activities.

Data released by independent economy tracker CMIE showed an 8.4per cent rise in projects under implementation in the quarter ended June 30, fastest since the September 2012 quarter.

Private sector projects under implementation rose 0.8 per cent in the June quarter, the first expansion in eight quarters, providing boost to the Narendra Modi government that has faced criticism of late for a slackening of reforms.

"Bottom line from this quarter's release is that the data looks encouraging with projects under implementation improving for the fourth quarter," Morgan Stanley noted in a report analysing the CMIE data.

Another report said the stock of stalled projects has declined for the fifth successive quarter.

From a peak of 8.4 per cent of GDP in the quarter ended March 31, 2014, stalled projects' stock declined to 6.6 per cent in June 2015 quarter, helped by the government's emphasis on capital spending at the start of the new fiscal.

"Since March 2014, projects worth about 2 per cent of GDP have been installed. Progressing steadily, they have now reached a critical mass and can potentially start impacting domestic activity notably," HSBC noted in a report, which however also noted that new projects were conspicuous by their absence. This view is consistent with a rise in production of capital goods as per IIP data.

Investments worth Rs 1.15 lakh crore were announced during the June quarter, a 33 per cent rise from a year ago but on a weak base, CMIE had said on July 1.

Also, the first quarter of fiscal 2015-16 saw around 165 projects getting scrapped, which is up from 106 projects stalled in June 2014 quarter.

A heavily indebted private sector has largely been unable to step up investment in the face of weak demand while banks, struggling with bad loans, are finding it difficult to cut rates or lend more to stimulate consumption.

Further, bank credit growth fell to lowest in more than two decades in FY15.



Further, bank credit growth fell to lowest in more than two decades in FY15.

"Broad-based recovery seems far off. There might be green shoots here but both domestic and external demand remains extremely weak. There are noisy signals in the economy. Private investments will still take time to pick up. We should see action in the infra sector, which should push investment, but the financial institutions data does not reflect that. Who would lend to the infra sector at this juncture," said DK Joshi, chief economist, Crisil.

Morgan Stanley says recent government action should sustain the revival in capital expenditure.

"We believe that recent government action to accelerate the pace of medium term reforms (addressing issues related to land, labour and taxation) will help sustain the recovery in capex..." the report, authored by Chetan Ahya, Upasana Chachra and Nupur Gupta, noted.

It sees the economy growing at 6.5 per cent in FY16 as per the old GDP series, by which measure growth in FY14 was 4.9 per cent. Under the new GDP methodology Indian economy expanded by a perkier 7.3 per cent in FY15 and is expected to accelerate to near 8 per cent in the current year.



HSBC said that installing projects would provide momentum for some time in the absence of new factories and mines.



"True, new projects are not showing any increase, but they may not really be the right indicator to track turning points. Right now, resolving a substantial number of stuck projects could in itself trigger notable investment spending," said Pranjul Bhandari, chief India economist, urging government to get state-run companies to step up investments.

Much of the improvement is visible in the roads and railways sector where higher spending and policy initiative has resulted in investment picking up.

In the April-May period, the government has managed to spend 14.8 per cent of its budgeted spending for the year. Within that, 13 per cent of plan funds for the entire year have been spent in the first two months, a fast start to the year.

Many economists caution that investment activity remains weak. "While macro numbers, right from inflation to current account look under control, the domestic private investment remains weak.

The credit growth does not show that manufacturing pickup is on way. It will take a while to gather momentum. As far as project implementation numbers go, they are coming from a very low base. Government's planned capital expenditure slowed down in May versus April," said Soumya Kanti Ghosh, chief economic advisor, SBI.

(image credits: unep.org)

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