Capex Revival in Sight?

Wed, 6 Jan Pre-Open

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A rise in investments in the infrastructure space is one of the first signs of a pickup in economic activity. But if CMIE's data is to be believed, the current situation is anything but positive. New projects registered a sharp decline of 65% in the quarter ended December 2015 as compared to preceding quarter.

The quantum of new project announcements was pegged at Rs 1.04 trillion in the December quarter. But mind you, these are just announcements. It needs to be seen whether these get converted into actual capital expenditure.

To add to the woes, there is no significant improvement in stalled project scenario. The quantum of stalled projects as a percentage of those under implementation remained at around 11.8%. Quantum of stalled projects has worsened as compared to the June quarter wherein the figure stood at 10.6%. Such projects have been stalled on account of various issues such as problems over land acquisition, lack of clearances, lack of funds and raw material supply problems. It is important to revive the stalled projects in order to free up the capital which can then be used applied for productive purpose. Further, it will provide the much needed relief to banks that have provided loans to such companies and projects.

Majority of stalled projects are in the manufacturing and power space. Both the sectors account for almost two-third of the stalled projects. Within the manufacturing space, 78% of the stalled projects are in the metals and metal products space. This is evident from the sharp decline in the prices of the metal, which have been on a downward spiral for over a year now.

The slowdown in the private capital expenditure can largely be attributed to high indebtedness and weak corporate balance sheets. Reportedly, the Mid-Year Economic Review released by the Finance Ministry shows that private capital expenditure contributed only 1% to gross domestic product (GDP) growth in April-September 2015, compared with an average 3.2% contribution in the 2004-11 period.

Considering the weak investments from the private sector space, the government will have to ramp up its spending on infrastructure activities. Nevertheless, with utilisation levels still far from being comfortable, it does seem that the expectations from the government and its impact on India's capex revival may be a little too stretched.

While it is true that one of the key factors that dominated the election campaign agenda was to give infrastructure a big push; however, the government has not been successful in doing so, so far.

The need of the hour is to strike the right balance and ensure that there are no more hurdles in ramping up infrastructure. This would be critical in ensuring a sustained high GDP growth for the country in the longer term.

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