NIB may aid investments over longer-term: CMIE's Vyas

Mahesh Vyas of Centre for Monitoring the Indian Economy says the pace of investment had clearly slowed down in the first half of the current fiscal year. He says the slowdown was both in new proposals as well as execution.

"There are some postponements that have happened, which will lead to a spike in investment completion in the second half," he told CNBC-TV18 in an interview. In an attempt to hasten the clearing process for big investment proposals, the government is mulling setting up of the National Investment Board (NIB). The proposed NIB envisaged will act as a final body for clearing proposals, after which no ministry will have power to raise objections. Vyas says the NIB may aid investments over the longer-term. However, he doesn’t see NIB playing a significant role this fiscal year. Below is the edited transcript of Vyas’ interview with CNBC-TV18. Q: What updates can you give us first on the state of the investment cycle which the government is trying to restore with the new national investment board? A: Investments in the first half of current fiscal year seems to have slowed down in terms of implementation. It has slowed down very substantially in terms of new investment proposals being made by corporates. A pickup in the second half is expected. Also, the first half numbers will undergo a change as new information comes in. There is also one piece of information that the number of projects getting shelved in the first half also dropped very dramatically. There is an all-round slowing down of any activity on the investment front at least in so far as the numbers of the first half are concerned. There are some postponements that have happened, which will lead to a spike in investment completion in the second half. Q: Are you hopeful that the contours of the National Investment Board are good enough to re-stoke or stem the sluggishness that you are talking about or do you fear like a lot of people that so much of the clearances are in the domain of the states that good intentions from the center may not be able to arrest this decline or turn it around? A: It is a complex issue. To simplify, I may say that the National Investment Board can solve some of the problems not all of the problems. The problems that it can solve relate to long-term investment trends. It important is to focus on what's likely to happen in the current year, in the coming one-two years. In these one-two years the pipeline of investments on hand for which approvals have been granted already is so high that if their implementation gets completed we will see tremendous progress. I don’t think the National Investment Board plays a significant role in the current year or in the next year in terms of new investments or new capacities being created. It is important to see at in this pipeline, which is very fat, there are lots of projects. We expect about Rs 6 lakh crore worth of investments to get completed in this financial year. They got postponed by order of six-eight months in the first half. The issues are complex, but there is still significant progress that can be seen on the investment front. _PAGEBREAK_ Q: What is your best guess of what is stalling the projects for which approvals have been granted? A: It is more difficult to identify those problems. It will be more nitty-gritty’s, it will be more about getting the last mile through. It is also a matter of timing because many industries are facing excess capacities, capacity utilization has been low. There is always going to be a problem of smoothening the supply curve in response to demand. There is a case of cement for example, having created a large amount of capacity in the recent past and utilization currently is low. There is going to be some amount of slowing in commissioning of projects. Yet in the last six-eight months we did see substantial new investment proposals coming up in cement. This is a case of evening out. In the case of electricity generation for example, there is a problem on supply of coal which has as much to do with import of coal from overseas particularly from Indonesia as much as it has to do with supplies within the country. These are last mile problems some related to demand, some related to supplies. But I don’t think there are any great structural bottlenecks that are holding up investments. There are problems, which are structural they affect the long-term and are related to issues like land acquisition but that’s like two-three years down the line. Right now, I don’t see a serious problem. Q: What is your current GDP forecast because numbers are all over the place from 4.9 percent to the IMF to the government speaking about 6.5 percent with most people in between? What do you think is where we will end up by the end of this year? A: We have a forecast of 6.2 percent for year GDP growth in 2012-2013. Q: What kind of manufacturing growth or industry growth does that weave in? A: According to our estimates, agriculture will grow by 1.6percent. While major crops will decline, minor crops like forestry and fishing will more than cover up for that and Rabi Crop is expected to be good. On the industrial front, we are expecting a growth of about 3-3.2 percent or so where in construction will grow well because the first quarter was very nice. We also expect manufacturing sector to pick up, a large part of the industrial sectors pickup going forward is because of the low base last year. In the third quarter, we expect low base to play a major role particularly in the month of October, even in September. In the last quarter, we see a substantial increase in production cyclically. The industrial sector is expected to do well. We expect services sector to grow by 8.1 percent.