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Mr. Shashikant Hegde, CEO, Projects Today
Mr. Shashikant Hegde, CEO, Projects Today

The steep drop seen in fresh investment announcements in Q2/FY20 was reversed in Q3/FY20. As a result, the total fresh investment announced in the quarter ended December 2019 increased by 5.7 percent as against 45.7 percent decline recorded in Q2/FY20. But a similar growth was not seen in the number of new projects. Such projects declined sharply from 2,688 in Q2/FY20 to 2,006 Q3/FY20. Additionally, the declines seen in projex (project expenditure) in the Central government and Private sectors in Q2/FY20 continued in Q3/FY20 too, with only State government agencies recording positive growth in fresh projex announcement. Another positive factor indicated by the Survey is the rise in Projex Execution Ratio (projex under execution as percent of total projex). The ratio at 35.28 percent was the highest observed in the last five years. These are the key findings of the 77th Survey of Projects Investment in India conducted by Projects Today.

As per the Survey, during Q3/FY20, in all 2,006 new projects entailing a total investment of Rs 2,03,779.3 crore were announced, indicating an increase of 5.7 percent when compared with the 2,688 new projects worth Rs 1,92,798.3 crore announced in Q2/FY20. In Q2/FY20, fresh projex had declined by 45.7 per cent on Q-o-Q basis.

Projex by Ownership
Given the fact that in the last two years the Central government was driving the projex cycle, the back-to-back declines recorded in the announcement of fresh investment in this segment in the last two quarters do not augur well for the overall investment environment in India. During Q3/FY20, 175 new projects worth Rs 26,602.8 crore were announced by the Central government-owned agencies, indicating a decline of 32.0 percent on Q-o-Q basis. Last quarter, fresh investment had declined by 47.6 percent again on Q-o-Q basis. Further, the Rs 26,602.8 crore of fresh investment committed by the Central government agencies is the lowest quarterly figure observed in the last 21 quarters.

The Private sector investment though declined at a slower rate of 17.9 percent in Q3/FY20 as against the decline of 57.9 percent recorded in Q2/FY20. The sharp fall in a number of new projects indicates the continued unwillingness of Indian private companies to commit funds for capacity building. In Q3/FY20, 487 new private projects worth Rs 72,446.4 crore were announced as against 686 projects worth Rs 88,230 crore announced in the preceding quarter.

Given the low capacity utilisation ratio and the unwillingness of banks to lend to medium and small scale units, the capacity building activities may remain subdued for another quarter or two.

Thanks to half-a-dozen mega projects (Rs 1,000 crore and above) announced in the State government, the total fresh projex increased by a healthy 60.0 percent during Q3/FY20 on Q-o-Q basis. In all, 1,344 new projects entailing a total investment of Rs 1,04,730.2 crore were announced in this quarter as against 1,727 new projects worth Rs 65,441.9 crore announced in the preceding quarter.

An Rs 46,675 crore water grid project of Panchayat Raj Engg Dept of Andhra Pradesh and an Rs 11,300 crore semi-high-speed rail corridor project by the Gujarat Rail Infra Devp Corpn were the two large projects announced in this ownership group.

Sectorwise Projex
The sectoral spread of fresh investment indicates that the small growth seen in fresh projex is limited to the Infrastructure sector only. While the Mining, Power and Irrigation sectors continued their declining trends in Q3/FY20 too, the total fresh projex attracted by the Manufacturing sector hit the lowest levels in the last 49 quarters!

The Infrastructure (Social and Transport) sector, though attracted 503 less projects, saw the total fresh investment increasing by a whopping 90.7 percent in Q3/FY20. The sector attracted 1,753 new projects worth Rs 1,68,578.7 crore in this quarter. Of these, 13 were mega projects with a total projex of Rs 1,08,658 crore. An Rs 46,675 crore water grid project of the Andhra Pradesh government was the largest infra project announced in this quarter and an Rs 31,415 crore Dhamra Port expansion project in Odisha was the next large project.

Within the Infrastructure sector, Hospitals, Water Supply, Railways, Ports, Airports, Pipelines and Power Distribution sectors attracted increased investments on Q-o-Q basis. NHAI’s failure to take up more highway projects under the HAM and the EPC routes saw fresh investment in the Roadways sector decline by 2.5 percent in Q3/FY20.

Reflecting the recent slowdown in industrial production, fresh investment announcements declined sharply by 44.8 percent in Q3/FY20. This came on top of the 49.8 percent decline the sector had seen in the preceding quarter. The Rs 25,684 crore fresh projex announced in the form of 224 projects in this sector was the lowest quarterly investment seen since Q1/FY08. In all, 164 new projects worth Rs 14,171.6 crore were announced during Q3/FY20 as against 224 new projects worth Rs 25,683.8 crore announced in Q2/FY20. A bulk of the fresh projex in this sector was proposed by the Private sector.

A fall in fresh projex announcements in the Food Processing, Chemicals, Cement and Basic metals reflects the overall slowdown in the demand for manufactured products prevailing in the country. The Automobile sector, which is one of the sectors affected seriously by the fall in demand, saw announcement of two electric vehicle projects and 10 auto ancillaries projects with a total outlay of Rs 1,525.9 crore. An Rs 1,000 crore Electric Buses project in Anantapur, Andhra Pradesh by Veera Vahana Udyog was the only mega auto project seen in the Manufacturing sector.

A five-fold growth seen in fresh investment in the Power sector in Q2/FY20 indicated revival of investment in this beleaguered sector. Belying this hope, the overall fresh investment declined sharply by 77.9 percent in Q3/FY20. The 20 new renewable power projects and a couple of hydel power projects could not match the amount of projex the sector had attracted in Q2/FY20. The last quarter had seen announcement of 71 projects worth Rs 65,616.3 crore which included 10 large thermal power projects and 58 Renewable power projects worth Rs 59,379.53 crore. Such fresh investment came down to Rs 14,478 crore in Q3/FY20. Two hydel-based power projects worth Rs 9,963 crore of Greenko Energies were the notable projects announced in this sector.

The Mining sector, where sizeable new investments were announced in the first quarter of this fiscal, saw only 11 new projects worth Rs 1,989 crore being announced in Q3/FY20. In the preceding quarter 55 projects worth Rs 3,488 crore were announced.

Statewise Projex
Among the states, Andhra Pradesh, Odisha and Gujarat were the gainers. Andhra Pradesh, which saw cancellation of some large size projects by the newly elected government, attracted 120 new projects worth Rs 52,442 crore and cornered around one-fourth of the total fresh investment announced during Q3/FY20. The state was followed by Odisha and Gujarat with fresh investments of Rs 35,823 crore and Rs 25,740 crore respectively. In December 2019, the Panchayat Raj Engg Dept of Andhra Pradesh announced an ambitious Rs 46,675 crore water grid project with an intention to supply tapped water to every house by 2022.

An Rs 31,415 crore Dhamra Port expansion was the largest project announced in the second ranked Odisha. An Rs 11,300 crore semi-high-speed Rajkot-Ahmedabad rail corridor was the largest project announced in Gujarat in Q3/FY20.

In terms of number of projects, Karnataka and Maharashtra topped the table with 263 and 233 new projects.

Quarterly Survey -77 chartOutlook 2019-20
With most of the economic indicators performing badly in the recent past and the economy clocking one of the lowest growth rates of 4.5 percent in the second quarter, the outlook for fresh investment looks not much rosy, at least in the near future. The unwillingness of banks to lend to mega infra projects and to medium and small companies and the dire strait of NBFCs has dried up funds to new projects proposed by private promoters.

While the recent tax incentives extended by the Central government might entice Indian and foreign companies to draw up new investment plans in 2020-21, the year-end announcement of the Central government to spend a huge sum of Rs 102 lakh crore on investment with private participation is a welcome move.

NIP Scheme
To reverse the falling investment trends, step up the annual investment into various social and economic infrastructure and create an enabling investment environment, the government in the last week of December 2019, announced a mammoth investment plan under the “National Infrastructure Pipeline” scheme. Under this programme a total sum of Rs 102 lakh crore would be spent between 2019 and 2025 in sectors like Energy, Transport Infrastructure, Urban and Rural Infrastructure, Agriculture Infrastructure, Health, Education, etc. Of the total planned projex, 22 percent will be invested by the Private sector and the balance will be equally shared by the Central and State governments.

For the successful execution of projects lined up in NIP, the government has to ensure timely clearances of projects, availability of land and adequate funds for both government and private participants.

Project Monitoring Mechanism
The Task Force, which prepared the NIP report, has also called for a project monitoring mechanism to ensure timely implementation. In the wake of the Finance Ministry’s recent request to Indian banks and financial institutions to increase their exposure to upcoming projects, Projects Today recommends setting up a Project Progress Monitoring Agency (PPMA) in the line of RERA to monitor the progress of those projects whose promoters have borrowed money from banks or from the general public. This would help the lending agencies in monitoring the progress of projects which they have funded and would also help in detecting diversion or misuse of funds by fraudulent project promoters. Such close monitoring would also help the government in identifying areas where its intervention is required.

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