04 Jul 2012 10:17 AM from CapEx
Mahesh Vyas

Sharp increase in projects getting shelved

Increase also seen in projects getting completed

Preliminary aggregates for the quarter ended June 2012 indicate a continuation of the trends seen in recent times with some interesting changes on the margin. Some promoters seem keen to announce the (temporary) shelving of their projects. In many cases this is done with a passing remark on the lack of enabling policies. But the completion of projects also continues to increase.

There is a churn in the projects on hand. But, there is no pick up in the announcement of new projects.

  1. The announcement of new projects continued to slow down. In the quarter ended June 2012, new investment proposals worth less than Rs.2 trillion were proposed. This reflects a continuation of the the slowdown over the past several quarters. In the preceding three quarters, new investment proposals had averaged Rs.2.3 trillion. And in the four quarters preceding these, it averaged a shade above Rs.3 trillion. The Rs.2 trillion of new proposals marks a further slowing down. This number is likely to go up in the coming months with updates. Nevertheless, it is clear that there is no improvement in the sharp slowdown seen in the announcement of new investment proposals.

  2. Rs.0.73 trillion worth of projects were completed during the quarter ended June 2012. This is much lower than the completions seen in the preceding, March 2012 quarter. This is because March usually sees a seasonal peaking of project completions. But, the June 2012 performance is higher than the completions seen in June 2011 (Rs.0.66 trillion) and also the average of the three quarters ended June, September and December 2011, which was Rs.0.65 billion. More importantly, the June 2012 quarter estimates are expected to see substantial upwards revisions in the coming months.

    Evidently, corporates are continuing to complete projects on hand at a brisk pace.

  3. Rs.0.2 trillion worth of projects were abandoned during the quarter ended June 2012. In 2011-12, projects worth Rs.1.2 trillion were abandoned.

  4. While promoters are not abandoning projects in large numbers, they are shelving their implementation rather aggressively. Investments worth Rs.0.84 trillion were shelved during the June 2012 quarter. This is higher than the Rs.0.53 trillion worth of shelving seen in the entire fiscal 2011-12. Availability of raw materials - particularly coal - seems to be the major factor behind these postponement of implementation.

  5. Cases of projects getting stalled (which happens in the early stages of announcing or proposing a project) have reduced. These had increased sharply in 2011-12. These happen mostly when companies face uncertainties regarding the availability of land. Rs.0.49 trillion worth of projects were stalled during the quarter ended June 2012. In 2011-12, projects worth Rs.2.7 trillion were stalled.