Project completion highest in years, pipeline robust

Lined-up projects enough to support growth for years even if no fresh investment, say CMIE data
MALINI BHUPTA, RAJESH BHAYANI & KATYA NAIDU
Mumbai, 18 April

POSITIVE INDICATIONS
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New projects

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Projects completed

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Projects shelved

I

n a season of bad news, the Centre for Monitoring the Indian Economy (CMIE) has sprung a pleasant surprise. In its latest data, the research body has said projects worth ~4 lakh crore were completed in FY12, the highest in the last few years. In the previous couple of years, the corresponding numbers were ~3.4 lakh crore and ~3.8 lakh crore, respectively. There’s more good news: the existing pipeline of projects is strong enough to sustain for the next several years. And, FY12 has seen a dramatic pick-up in completion of some of those outstanding projects. According to CMIE, at the end of March 2012, outstanding investment in projects amounted to ~140 lakh crore. That is six times the country’s annual gross fixed capital formation. The pipeline of outstanding projects is so large that even if no new project is announced for the next four-five years, the Indian economy can continue to grow at a brisk pace. It is for this reason that the completion of outstanding projects is a far more critical number to watch out for than new projects. There’s no doubt that outstanding investments may, however, continue to

No. FY 09-10 FY 10-11 FY 11-12

~ crore

No. 1,710 1,732

~ crore 3,84,520 3,38,845

No.

~ crore

4,044 16,72,678 5,052 16,55,251 3,194 10,21,584

539 2,76,230 377 1,65,222 522 5,14,708

1,575 3,15,329*

*CMIE estimates the final figure to be a little over ~4 lakh crore

Loans set to get cheaper, deposit rates decline
A day after the Reserve Bank of India signalled a reversal in the interest rate regime by cutting the key policy rate by 50 basis points, banks are gearing up to pare their lending and deposit rates. State-run lender IDBI Bank on Wednesday announced a cut in base rate — to which all loans rates are linked — by 25 basis points to 10.5 per cent. The lender also announced a reduction in its benchmark prime lending rate by 25 basis points to 15 per cent. 6> rise but at a slower pace, if completion and execution pick up. In all the noise about a slowdown in new investments, this pick-up in project completion has gone unnoticed. Typically, almost 50 per cent of projects slated for completion in a fiscal year are actually completed. Commenting on this trend, Mahesh Vyas, managing director and CEO of CMIE, told Business Standard, “All the projects getting completed are because they were a work in progress since 2005. These are getting completed as pending issues are getting cleared and projects getting on track. This is an automatic process and will continue for the next few years.” Data compiled by CMIE suggest the total completion during FY12 is estimated to have been around ~4 lakh crore. This would be the highest project completion seen by the industry in a single year. From ~66,187 crore in 2003-04, project completion has increased to ~3.8 lakh crore in 2009-10. It then moderated a bit to ~3.4 lakh crore in

2010-11. CMIE’s analyst team expects the number to double to ~8.3 lakh crore in 2012-13, if the completion rate goes up to 100 per cent. Given the issues faced by the corporate sector, not many are convinced by the pick-up in activity. A Subba Rao, CFO of GMR, said, “The slowdown in investment is a ground reality today. Across all sectors, everyone is wondering how to translate projects in the pipeline to execution. In infrastructure, power sector has the potential to attract the most investment, but it is plagued with problems. Going slow on new projects is a natural consequence to these problems.” Debashish Mishra, senior director, Deloitte Touche Tomatsu, believes, “There has been a slowdown in infrastructure investment. Many projects initiated earlier are stuck in environment and other clearances. Earlier, the Planning Commission was hoping infrastructure spending would be $120150 billion annually. We would be lucky if we get around $60 billion this year.” There’s little progress on infrastructure bids like ultra mega power projects or the Navi Mumbai Airport.
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