Fiscal 2017-18 is likely to go down as the worst possible year for investments in India. Extrapolating data available till the end of the third quarter indicates the following:
New investment proposals are likely to stabilise around Rs.8 trillion in 2017-18 which, would be about 60 per cent of the new proposals made during 2016-17 and would be the lowest level since 2004-05. This would be the third consecutive year of a fall in new investments since they spiked momentarily in 2014-15. The difference is that the fall in 2017-18 would be sharper than in earlier years.
Revival of projects that were shelved or abandoned earlier would likely add up to about Rs.1.2 trillion in 2017-18. This would be half of the revivals in 2016-17. Nevertheless, they assume greater importance now than ever before in the light of the fall in new investment proposals. Revived projects would account for nearly 15 per cent of new proposals in 2017-18. In 2016-17, they were 18 per cent of the value of all new projects. Till 2012-13, they were less than 10 per cent of new proposals.
Total investments made during the entire implementation of projects that would be completed during 2017-18 are likely to add up to a Rs.4 trillion. This is much smaller compared to Rs.6.3 trillion in 2016-17 and Rs.5.8 trillion in 2015-16. The sum of Rs.4 trillion is very small compared to the Rs.11 trillion worth of completions that were initially supposed to be commissioned during the year. Companies kept delaying their completion dates and as a result, the estimates of completions during 2017-18 came down progressively during the year to Rs.9 trillion and then to Rs.7 trillion. We now believe that the completions would be even lower at Rs.4 trillion. It is a familiar pattern to see the actual completions to be much smaller than the expected completions. Time-slippages happen for a variety of reasons. It is possible that more than a small proportion of the slippages this year reflect a deliberate postponing of the completion of capacities. This is because demand is not strong enough to absorb more capacities at the moment.
All projects that are announced do not get commissioned into new capacities. Many are dropped much earlier. The value of projects that get stalled, abandoned or shelved increased during 2017-18. In the first three quarters these added up to Rs.3.9 trillion which is the same as it was in the entire fiscal 2016-17. The value of such projects had declined during 2015-16 and 2016-17 but, they are slated to increase again - to about Rs.6 trillion in 2017-18. Besides, another Rs.5.9 trillion worth of projects were dropped because of lack of any information on them for a very long time. Thus, the total attrition during the first three quarters was investments worth Rs.9.9 trillion. Total attrition during 2017-18 could cross Rs.14 trillion.
The ratio of projects attrition to accretion, ie the ratio of projects stalled or dropped to the addition of projects because of new announcements or revival of old ones, is expected to rise sharply during 2017-18. Attrition would exceed accretions by over 50 per cent. In the past, attrition of investments has never exceeded accretions.
CMIE is somewhat conservative in announcing that a project is stalled. As a result, compared to the investments stalled, a much larger value of outstanding investments sits under the header “Projects with no information, but live”. These amounted to Rs.15.8 trillion as of the end of December 2017 compared to accretions that amounted to Rs.9.9 trillion during the first three quarters ended December 2017.
Some projects that are under various stages of implementation get stalled midway through their implementation. These projects are a lot more tangible (compared to others that are mere announcements of intentions) since some efforts are known to be made by their promoters to implement the project. Implementation of such projects worth nearly a trillion rupees were stalled thus during the first three quarters of 2017-18. Extrapolating from the current trend it appears to be possible that this would grow to about Rs.1 trillion by the end of the year. This implies that the total value of all outstanding under-implementation projects whose implementation is stalled would rise to about Rs.13.6 trillion compared to Rs.12.8 trillion in 2016-17.
In spite of the poor performance during 2017, the pipeline of investments is quite big at Rs.182 trillion. This pipeline hasn’t grown. It has in fact, shrunk from its peak of Rs.185 trillion as of March 2017. Half of these outstanding projects have moved beyond the stage of mere announcements and there is some information flow on them. This is a sizeable pipeline of about Rs.100 trillion. About 5-6 per cent of these get commissioned during a year. But, attrition because of being abandoned, stalled or shelved or dropped because of no information is much larger at 10-15 per cent. It is likely that by the end of 2017-18, the total investments under implementation will fall a tad but it will still remain largely in the order of about Rs.100 trillion. The challenge is to improve business conditions to accelerate the pace of implementation of these Rs.100 trillion worth of investment projects. To place this figure in context, India’s GDP was Rs.151 trillion and its gross fixed capital formation was Rs.41 trillion in 2016-17.