Project implementation and completions stalled

by Mahesh Vyas

Given the prolonged lockdown and continued uncertainties regarding a return to some form of normalcy, Indian enterprise was not expected to enthusiastically complete capacity-expansion investment projects they had initiated in the past. Initially, in April and May, the lockdown froze implementation of projects by a diktat. Then disruption of labour made it difficult for enterprise to undertake project implementation activities. And finally, uncertainties about a revival have slowed down project completions. Lingering uncertainties about a revival in demand will continue to inflict delays in project completion schedules.

Many economic indicators that had fallen very sharply during the first quarter of the current fiscal showed a substantial albeit incomplete recovery in the second quarter. Project completions show no improvement.

CMIE’s CapEx service that tracks the initiation, implementation and completion of capacity-expanding projects has chronicled the suspension of investment activities since the lockdown. We reported in early July this year that 674 projects worth Rs.9.7 trillion were stalled because of the lockdown in the quarter ended March. These were predominantly in the month of March. Another eight projects worth Rs.62 billion were stalled in the June 2020 quarter. These numbers now stand revised at 721 projects worth Rs.9.8 trillion in the March 2020 quarter and 22 projects worth Rs.85 billion in the June 2020 quarter. Another Rs.32 billion worth of projects were stalled in the quarter ended September 2020.

As the severity of the lockdown was scaled down progressively, many of these projects, whose implementation was stalled, resumed activities. Implementation of projects worth Rs.9.9 trillion was stalled during the first nine months of 2020 till September 30. Projects worth Rs.9.2 trillion were revived during the same period.

A relatively small, Rs.41 billion worth of projects whose implementation was stalled were abandoned during the first nine months of 2020. Just before the lockdown, this averaged at over Rs.100 billion and before that much more. Apparently, uncertainties freeze decisions at least initially. If the lockdown was not a good period to implement a project, it was also not a good time to take big decisions like abandoning a project.

The net cumulative evident impact of the lockdown on projects that were under implementation was relatively small. Projects worth Rs.775 billion were either stalled or abandoned.

Compared to the past, Rs.775 billion worth of projects being stalled or abandoned net of revival during a nine month period is modest. In the past 5-6 years, such number has averaged between Rs.1.5 trillion and Rs.2 trillion per nine-month period.

Projects did get stalled in a big way when the lockdown began but, most of them resumed work as the lockdown was eased. The net effect on stalling has been marginal.

But, the impact on project completions has been far more severe. Projects worth Rs.326 billion were commissioned during the quarter ended September 2020. This is the second consecutive quarter when project completions have fallen to such precipitously low levels. In the June 2020 quarter, projects worth Rs.240 billion were completed. In comparison, project completions averaged at Rs.1.3 trillion per quarter in 2019-20 and Rs.1.6 trillion per quarter in 2018-19.

The rate of project completion has dropped sharply during the lockdown. This rate, which is the value of projects completed expressed as a per cent of value of projects under implementation, had dropped to 0.2 per cent in the June 2020 quarter. It recovered marginally to 0.28 per cent in the September 2020 quarter. These proportions compare poorly with the average rate of completion of well over 1 per cent in the recent past.

Most projects completed in the September 2020 quarter were in the infrastructure sectors. Rail and road transport claimed the biggest share among all sectors. These two together accounted for 43 per cent of the total completion of projects. Thirty five per cent of the total value of commissioned projects was in the transport infrastructure services sectors. We add to this the largest project commissioned in the quarter, the Rs.25 billion nationwide broadband project by Railtel Corporation of India. Although this is a telecommunication project, it is related to the transport infrastructure services sector. Other major transport sector projects commissioned include the Rs.18 billion Biaora to Dewas four laning project along NH-3. Next, there was the Rs.12 billion Jabalpur-Lakhnadon four-lane highway project, the Rs.12 billion Rohna-Jhajjar four lane highway project and the Punjab-Haryana border four lane highway project in the roads sector. Besides, there was the Jaipur Metro rail project Phase 1 B was completed with an outlay of Rs.11 billion.

Two irrigation projects were commissioned - the Rs.22 billion irrigation project in Telangana and the Rs.10 billion Muvattupuzha Valley Irrigation project in Kerala. But, a larger Rs.107 billion irrigation project in Uttar Pradesh - the Sarayu Nahar project could not meet its commissioning date in the September 2020 quarter. And so did the Rs.26 billion Arjun Sahayak Irrigation project, also in Uttar Pradesh.

Prominent in the completions during the quarter are two transport manufacturing projects. Both were completed with an investment of Rs.12.5 billion, each. This includes Ceat’s tyres plant in Nagpur and PCA Motors’ passenger car plant in Thiruvallur.

Government projects accounted for 63 per cent of all commissioning of projects in the September 2020 quarter. In the last three quarters, government projects have accounted for over 60 per cent of all commissioning. Private sector has made a smaller contribution to completion of capacity-expanding projects.

Private sector projects could take much longer to revert to aggressive completion of projects. While the logistical reasons for slowing down of project completions may be getting over, the problem of depleted demand will linger and will remain a hindrance to project completions.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.9 +1.5
Consumer Sentiments Index
Base September-December 2015
50.7 +0.4
Consumer Expectations Index
Base September-December 2015
52.8 +0.6
Current Economic Conditions Index
Base September-December 2015
47.5 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Dec 19 Mar 20 Jun 20 Sep 20
New projects 5.55 3.95 0.71 0.68
Completed projects 1.66 1.75 0.24 0.64
Stalled projects 0.61 0.77 0.11 0.08
Revived projects 0.83 0.42 0.68 0.34
Implementation stalled projects 0.13 9.78 0.09 0.03
Updated on: 23 Oct 2020 8:28PM
Quarterly Financials of Listed Companies
(% change) Dec 19 Mar 20 Jun 20 Sep 20
All listed Companies
 Income -1.7 -4.9 -27.9 3.3
 Expenses -2.2 -1.9 -28.3 1.1
 Net profit -10.8 -47.3 -38.7 8.8
 PAT margin (%) 5.1 2.4 5.4 15.7
 Count of Cos. 4,435 4,273 4,184 213
Non-financial Companies
 Income -5.5 -8.9 -38.0 0.6
 Expenses -6.4 -4.9 -38.2 -3.4
 Net profit -13.9 -48.3 -57.1 13.9
 PAT margin (%) 5.7 3.4 4.4 16.8
 Net fixed assets 13.3 19.8
 Current assets 3.0 3.5
 Current liabilities 4.9 1.5
 Borrowings 14.7 2.8
 Reserves & surplus 2.1 14.4
 Count of Cos. 3,311 3,221 3,153 160
Numbers are net of P&E
Updated on: 23 Oct 2020 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.3 0.6
 Expenses 9.9 13.5 1.2
 Net profit -40.4 22.3 -19.0
 PAT margin (%) 2.0 2.4 4.4
 Assets 10.9 9.3 9.4
 Net worth 7.5 8.6 5.0
 RONW (%) 3.5 4.3 6.1
 Count of Cos. 27,922 27,039 4,480
Non-financial Companies
 Income 8.6 13.8 -2.8
 Expenses 8.8 14.0 -1.6
 Net profit -9.0 23.5 -28.4
 PAT margin (%) 2.7 3.2 4.7
 Net fixed assets 7.2 5.4 13.8
 Net worth 6.1 8.5 1.9
 RONW (%) 5.7 6.9 7.6
 Debt / Equity (times) 1.0 0.9 0.7
 Interest cover (times) 2.1 2.4 2.9
 Net working capital cycle (days) 77 70 56
 Count of Cos. 22,629 21,863 3,354
Numbers are net of P&E
Updated on: 20 Oct 2020 9:02AM