BackUnstalled projects reaching critical mass but new investments slow, says HSBC
The absolute value of stalled projects and the ratio of these projects to overall projects have fallen for the fifth consecutive quarter, says HSBC
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Mumbai: The absolute value of stalled projects and the ratio of these projects to overall projects have fallen for the fifth consecutive quarter, HSBC Global Research said in a report on Friday.
According to the report based on data from the Centre For Monitoring Indian Economy (CMIE), the April-June quarter was the fifth quarter to see a fall, resulting in a meaningful decline.
The process of unstalling was quicker for government projects, found the analysis. Revival of projects was focused on manufacturing and transport services sectors, which together account for half the stock of stalled projects. Progress has been slower in the mining, electricity and construction sectors.
“Unstalling activity has reached a critical mass and coincided conveniently with the nascent spurt in central government capex, both focusing on specific sectors (roads and rails). No wonder several indicators of capital goods production are looking up," wrote Pranjul Bhandari, chief India economist at HSBC Securities and Capital Markets India Pvt. Ltd.
“One may also argue that new project (by value) growth was a strong 37% y-o-y (year-on-year) in the April-June quarter, but put that in context, it comes over one of the lowest base in recent times, and in fact growth rates have been on a decline over the last three quarters," said the report.
Bhandari concluded that resolving stuck projects could give a considerable boost to investment spending. “Right now, resolving a substantial number of stuck projects could in itself trigger notable investment spending. New projects perhaps are still a few quarters away, maybe as elusive as banking credit growth," said Bhandari, adding that resolving stuck projects will have a “knock-on effect" on the rest of the economy.
“It’s no surprise then that the IP capital goods index, infrastructure index, capex details within PMI and commercial vehicle sales have all been rising over the last few months," she added.
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