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Project completions stall

by Mahesh Vyas

Project completions got off to a weak start in fiscal 2018-19. Rs.779 billion worth of projects were commissioned during the first quarter of the year. As additional data pours in during the coming weeks this estimate will be revised upwards. Yet, it is unlikely to rise enough to dispel the low spirits around investments.

The investments pipeline is fat but, the progress of implementation has slowed down. On an average, about 6 per cent of the outstanding projects under implementation are commissioned during a year. In good times this ratio rises to nearly 8 per cent (as it did during 2004-05 and 2006-07) and in bad times it could come close to 4 per cent as it did during the “policy paralysis” days of 2013-14.

During 2015-16 and 2016-17, the rate of project completion, at 6 and 6.3 per cent, respectively was close to the average rate. However, because of the persistent rise in outstanding investments over the past decade, the total project completions reached record levels of Rs.5.8 trillion and Rs.6.4 trillion, respectively.

Rs.4.7 trillion worth of projects were completed during 2017-18. This was 4.5 per cent of the total investments envisaged in all projects under implementation at the end of the year. It is likely that this value will increase as new information flows in but, it is unlikely that the rate of implementation will change much because as the numerator in the ratio will increase there will also be an independent increase in the denominator.

This fall in the rate of implementation seen in 2017-18, continues into 2018-19. During the first quarter, completions were 0.66 per cent of the outstanding projects under implementation. On annualisation, this works out to an implementation rate of 2.6 per cent which is nearly half the 4.5 per cent rate recorded in 2017-18 and even lower when compared to the performance in the preceding two years.

As mentioned earlier, on an average about 6 per cent of the outstanding value of investments in projects under implementation is commissioned during a year. Implicitly, 1.5 per cent is commissioned during a quarter. In comparison to this average, the 0.66 per cent completion rate recorded in the quarter of June 2018 is very low.

We had expected projects worth Rs.1.5 trillion to be completed during the quarter of June 2018. This estimate was based on the commissioning dates disclosed by the promoters of the projects and the judgement of our analysts about the feasibility of completion on the disclosed date. In comparison, only Rs.779 billion worth of project commissionings have come to light so far.

According to CMIE’s CapEx database, projects worth Rs.14 trillion were scheduled to be completed in 2018-19 as per information available at the end of March 2018. Updated information available till June 2018 show that projects worth only Rs.12.5 trillion are scheduled to be completed. The rest have pushed their completion dates further into the future. These estimates are mostly based on claims made by project promoters.

However, these claims, shown in the CapEx database, are mostly optimistic. Historically, completions are much lower than the aggregate claims of project promoters or managers. Without being too judgemental, CMIE industry analysts make minor corrections to the promoters’ claims of completion. In March 2018, the analysts had suggested that completions during 2018-19 would be Rs.13 trillion and not Rs.14 trillion as claimed by the CapEx database. In June 2018, they revised the CapEx estimate of Rs.12.5 trillion to Rs.11.1 trillion.

Historically, CMIE’s industry analysts have been too coy to contradict claims made by a project promoter. As a result, their estimates have also been way above the actual completions. The final aggregate value of completion of projects has turned out to be only half of the estimates made by CMIE industry analysts. This holds true for the June 2018 quarter.

Given the above, we believe that the final completion of projects in 2018-19 would be of the order of Rs.5.5 trillion. This is much lower than the estimate of Rs.12.5 trillion available in the CapEx database and the Rs.11.1 trillion estimated by CMIE’s industry analysts.

We expect project completions to add up to Rs.5.2 trillion in 2017-18. This is higher than the current estimate of Rs.4.7 trillion because the current estimate would be revised as new data flows in during the coming months.

The above implies a slowing down of the completion of investment projects. The aggregate value of investments completed will slow down from Rs.6.4 trillion in 2016-17 to Rs.5.2 trillion in 2017-18. The implementation ratio will have slowed down from 6.35 in 2016-17 to 5.06 in 2017-18. And we expect it to slow down further in 2018-19.