The 74th Survey of Projects Investment in India indicates that the purging of non-viable projects on large scale, which started in FY11, continued for the ninth year.
The stalling of unviable projects due to internal or external reasons is a common phenomenon in project investment landscape. However, the number of stalled projects increased alarmingly in the last four years of FY10-14 and continued throughout in the FY15-19 period. Such a trend does not augur well for sustained capacity build-up activities in an economy.
The Projects Today Survey reveals that during the FY15-19 period, 3,642 projects worth Rs 16,59,353 crore were put on the back-burner by their promoters as against 3,791 projects worth Rs 10,94,945 crore in the FY10-14 period indicating an increase of 51.6 percent in toxic projects during the latest five-year period, FY15-91.
The high volume of projects-purging started in FY10-14, and continued in the next lustrum FY15-19. Though the phenomenon was observed across all major sectors during FY15-19, around 82 percent of the total projects investment vanished was in the Manufacturing and Electricity sectors.
On the positive note, the total quantum of stalled projects after hitting the recent high of Rs 1,95,795 crore in the first quarter of FY18 dropped sharply to Rs 12,477 crore in the last quarter of FY19. This is the lowest quarter figure recorded in the last 18 quarters. The total amount of projects shelved averaged at around Rs 85,000 crore between the first quarter of FY17 and second quarter of FY19.
A comparison between the two five-year periods indicates that during FY10-14, of the 43,876 new projects announced, 3,696 projects were shelved. On the other hand, of the 47,911 projects announced during FY15-19, so far only 370 projects have been shelved. Though it is too early to predict normalisation in the trends in projects shelving, the drop after a long period is a welcome sign.
Manufacturing: Project purging continues
The Manufacturing sector accounted for around one-third of the total project investment stalled during FY15-19. In the preceding lustrum its share was 43.3 percent. Within the Manufacturing sector, Food & Agro, Chemicals including Refinery, Cement, Metals and Electronics sectors were the major losers. Of the 242 Food & Agro projects (Rs 20,187 crore) shelved, 70 were Sugar projects, 60 were Dairy and Food Processing projects and 32 Vegetable Oils projects.
In the Chemicals sector, projects investment worth Rs 1,04,538 crore turned dud was in the Refinery sector. Some of these refinery projects were owned by Indian Oil Corpn., Essar Oil, Cals Refineries, Nagarjuna Oil Corpn., Kakinada Refinery & Petrochemicals and Jindal Synfuels.
The slowdown in the construction sector saw a number of cement manufacturers go slow on their expansion plans and defer their announced projects. In all, 129 cement projects with a combined cement capacity of around 175 mln tpa, entailing a total investment of Rs 59,167 crore were shelved by their promoters. This was on top of 81 cement projects worth Rs 27,050 crore shelved in the FY10-14 period. Some of the cement majors opted for acquisition route to expand their capacities rather than set up new projects.
The last 10-year stretch has seen more number of mega steel projects being abandoned by private promoters than being commissioned or announced. The falling international prices, dumping by Chinese companies, land and environmental issues and inability to raise the required finance hampered these mega projects from materialising. The period also saw some of the well-known steel companies referred to NCLT by its lenders.
Some of the super-mega (cost Rs 10,000 crore or more) steel projects shelved belonged to Arcelor-Mittal India, Electrosteel Steels, JSW Bengal Steel, Posco India, Uttam Galva Steels, Tata Steel, etc.
In the Aluminium sector, two mega projects, Rs 10,000 crore integrated aluminium of RSB Metaltech and Rs 15,000 crore Alumina plant and smelter of Gujarat Mineral Devp Corpn were shelved.
The Electronics sector, which has started attracting fresh investments in recent years, saw three mega projects being shelved on viability issues. These projects were Rs 40,000 crore LCD Panels project of Twinstar Display Technologies, Rs 34,399 crore Semiconductor project of HSMC India and Rs 29,013 crore Semiconductor project of Jaiprakash Associates.
Electricity: No respite seen in Thermal projects
The high volume of shelving of Power projects started in the fourth quarter of FY15 and continued till the 3rd Quarter of FY19. During this period, on an average projects worth Rs 46,800 crore were shelved in each quarter. The trend was halted in the last quarter of FY19, where eight projects worth Rs 6,887 crore were shelved.
In the FY10-14 period, Thermal power projects (coal-based and gas-based) accounted for around 89.8 percent of the total Power investment purged. The share increased further to 93.5 percent in the period FY15-19. The key reasons for non-materialisation of Thermal power projects were faulty bidding by developers, delays in signing of PPAs, fuel linkage issues, hike in the price of imported coal, non-availability of gas, refusal from lenders to invest more, etc. Though the government made some efforts to salvage some of the mega projects, the purging of projects continued.
The five-year period FY10-14 saw shelving of 179 Thermal power projects worth Rs 2,40,783 crore and the subsequent five-year period FY15-19 saw shelving of another 246 thermal projects worth Rs 2,60,646 crore. The announcement of only 98 new thermal power projects in the lustrum FY15-19 as against 639 new projects in the preceding lustrum FY10-14 clearly indicates the unwillingness of independent power developers to commit funds in this sector. A majority of the new projects seen in this sector were announced by the public sector entities.
Infrastructure: No scale-up in shelving
Unlike the Manufacturing and Electricity, the Infrastructure sector, comprising Social and Transport infrastructure, did not see any big jump in projects shelving. In fact, the total number of projects shelved in this sector in FY15-19 decreased by 311 projects. As against 1,703 projects worth Rs 2,40,783 crore shelved in the FY10-14 period, 1,392 new projects worth Rs 2,60,646 crore were put on the back-burner by their respective promoters.
Among the sub-sectors, which lost a large number of projects were Community Services, Roadways and Construction sectors. In the Roadways sector, 114 projects worth Rs 33,917 crore were shelved. These were mainly because of land and clearances issues. Further, of these only 16 belonged to NHAI.
In the Railways, of the seven mega projects worth Rs 72,930 crore stalled, the Mumbai Metro Line II has been relaunched under new packages.
The Construction sector comprising Commercial Complexes, Real Estate and Industrial Parks, saw less number of projects stalled in the last five years. As against this, 967 projects worth Rs 1,06,905 crore dropped in FY10-14; during FY15-19, in all 688 projects worth Rs 80,899 crore were shelved.
Mining: Court Strictures affect investment
Projects in the Mining sector suffered due to court interventions and policy-related issues. During FY15-19, 216 mining projects entailing a total investment of Rs 30,534 crore were put on the back-burner by their promoters. Most of the shelved projects were proposed by Indian private companies. The stalled projects included 48 coal mining projects, 21 Oil exploration projects and 82 metallic ore mining projects. During the FY10-14 period, the country had seen shelving of 176 projects with an aggregate investment of Rs 25,041 crore.
Private Sector accounted for 75 percent of stalled projects
The Private sector accounted for nearly 75 percent of the total projex shelved in the last 10 years. In the FY10-14 period, by stalling 2,852 projects worth Rs 8,05,343 crore the sector accounted for 73.6 percent of the total investment stalled. The sector’s share inched up to 74.5 percent during the FY15-19 period. During the latest five years ended 31 March 2019, the sector stalled 2,860 projects worth Rs 12,35,071 crore. The bulk of the projex shelved was in the Manufacturing and Electricity sectors.
On the government front, the share of Central government agencies in stalled projects came down from 13.6 percent in FY10-14 to 9.3 percent in FY15-19, and that of state government- owned agencies increased from 12.9 percent in FY10-14 to 16.3 percent in FY15-19.
Maharashtra and Odisha biggest losers
Among the major states, Maharashtra and Odisha were the two states which accounted for around a quarter of the projects investment stalled in both the lustrums – FY10-14 and FY15-19. In Maharashtra 753 projects entailing a total investment of Rs 2,81,461 crore were put on hold, wherein Odisha 133 projects worth Rs 1,98,444 crore were stalled. In the case of Maharashtra, all three major sectors – Manufacturing, Electricity and Infrastructure — saw heavy stalling of projects. Further, unlike the trends observed at national level, the share of the Private sector installed projects was far less at 55 percent.
On the contrary, in the case of Odisha, the Private sector accounted for around 85 percent of the stalled projects and mass scale of projects stalling was observed in the Manufacturing and Electricity sectors.
Andhra Pradesh, Chhattisgarh, Madhya Pradesh and Gujarat were the other states which accounted for around 10 percent each of the projects investment stalled in FY15-19.