This Article is From Sep 23, 2012

Projects worth Rs 1.8 trillion shelved in April-August: CMIE

Projects worth Rs 1.8 trillion shelved in April-August: CMIE

That the economy is on steep slide on the back of drying up investments is clear from the fact that corporates have shelved projects worth whopping Rs 1.8 trillion during April-August, according to the data from the Centre for Monitoring Indian Economy (CMIE).

Significantly, this is not due to high interest rates, as is being claimed by every industry lobby, but mostly due to delays in getting land and environmental clearances among others.

Project shelving which has been on rise for the past 18 months had peaked at Rs 4.5 trillion last fiscal, the agency said.

The prime reason behind shelving of projects was problems being encountered in land acquisition, securing environmental clearances, local unrest, lack of availability of fuel or raw materials, particularly the mined ones like coal and iron ore, the CMIE said.

A few promoters have cited inadequate availability of cheap funds and poor demand also as the reasons to abort the projects, according to the independent economic think tank.

"We expect project shelving to remain high or rise even further in the coming months. A huge pipeline of projects has got built up in the past few years because of the rush among companies to announce new projects since the capex boom began in 2004-05," CMIE said.

Outstanding investment rose six times since the beginning of 2005-06 and stood at Rs 141.8 trillion by the end of June 2012.

In a capex cycle, as more and more investments get announced, promoters of all projects in their initial stages re-assess their projects in the light of increased competition and the relatively weaker projects get shelved. The CMIE data show that the large and capital-intensive industries have seen huge capacity additions in the past few years. And their capacity utilisation has fallen as the demand has not grown at the same pace.

"A large number of projects are scheduled for completion in the next two years. Their completion will lead to a further decline in the capacity utilisation of these industries. Hence, we expect promoters to be selective in implementing fresh projects going forward," the agency said.

CMIE is, however, hopeful that it is unlikely to have any impact on the project completion in the next two years, as a large number of projects are in advanced stages of implementation and there are unlikely to get shelved.

As per CMIE's capex database, projects worth Rs 9.3 trillion are scheduled to get completed this fiscal and worth Rs 9.6 trillion next fiscal.

The agency believes that the project completion in FY13 will be worth Rs 5.6 trillion and in FY14 it could be Rs 5.8 trillion. This implies a quantum jump over the project completion of Rs 4.1 trillion last fiscal.