Q2 sees rise in new projects; but all's not well: CMIE

While the investment cycle is showing a pickup in the second quarter over the July quarter, with a substantial increase in total new projects, the real picture is not as rosy, says Mahesh Vyas of the Centre for Monitoring The Indian Economy (CMIE). Nothing on the ground seems to suggest a holistic pickup. "A large part of the new investment comes from one big investment show in Tamil Nadu and when that happens there is a blip. If one were to take it out, the picture does not look too good," he told CNBC-TV18.

Vyas says about 1/3rd of the new investment is in Tamil Nadu, while the rest is in Maharashtra and Tamil Nadu. In the July-September quarter, less than 500 projects were announced, he adds.However, in value terms, in the July-September quarter, new investment projects worth Rs 3.5 lakh crore were announced as opposed to Rs 1.2 lakh crore in the previous quarter.

Meanwhile, there has also been an increase in the number of stalled projects in the quarter ended September, he adds.Below is the verbatim transcript of Mahesh Vyas’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: What is the sense you are getting between the last time we spoke to you and now, are there any signs of a pickup in the investment cycle? A: The headline numbers do show that there is some pickup in the sense that the total new investments that were announced in the quarter that ended September, showed a substantial increase. We saw Rs 3.5 lakh crore worth of new investments being announced by government and private and this much higher than what we have seen in the preceding several quarters. So, in that sense there is a pickup but there is a big asterisk mark against that which says that it is not all that beautiful. Latha: Which is? A: A large part of this new investment comes from one big investment show in Tamil Nadu which usually has a large number of these announcements coming in whether it is in Gujarat or in Tamil Nadu or in any other state. So, when this happens there is usually a blip. So, if you correct for the blip, there is not much on the table really. Latha: If you correct for the blip then what does the number look like since you are practiced eye at this? A: It doesn’t look very nice, not very good, not very great. It has been a long wait hoping for an investment pickup to happen or a substantial one. Even the one that I see over here has got a few other problems. For example, while the value of investments is high over here, the number of projects that have been announced in this quarter is low. So, we have got a fall in the total number of projects that have been announced in the last quarter. So, there isn't so much of confidence really speaking on the new investments coming up yet. Sonia: Can you give us the numbers, how many projects have been announced in the last quarter and how much lower is it? A: What we have seen is less than 500 projects being announced in the last quarter; that is really very low. Even in the preceding quarters we have seen of the order of 600-700 projects. In the boom time there used to be close to 1,500 projects being announced in a quarter. So, this 1/3rd of what boom times is; it is quite low.The other thing that I noticed in the numbers that we complied a few days ago is that there are a few investments which are not very clear but we have counted them. So, you have one big television LCD fabrication project which is quite large but they are not clear where they are going to set it up as yet. So, what we are counting is also kind of hazy and unclear investment. Latha: This Rs 3.5 lakh crore compares to what number in the previous year or is it quarterly? A: It is quarterly. In the preceding quarter it was Rs 2-2.5 lakh crore. It had gone down a year ago, it was much lower but it hasn’t grown much beyond Rs 1.5-2.5 lakh crore. So, 3.5 lakh crore is really a big number. However, behind that the projects are still too weak. They are not as strong, they don’t instill confidence. 1/3rd of the investments is in Tamil Nadu, 2/3rd are in just Tamil Nadu and Maharashtra. So, there isn't much investment in the country. Latha: The other index that you track is the stalled projects index. How is the implementation of stalled projects progressing? Has that number come down? A: In the quarter in the September there was an increase in the project stalled. So, we have seen worsening of the situation in investments in that sense. Two large steel projects have been stalled and there are about 70 projects that went out and said that our implementation is stalled. They are not abandoned but they have stalled their investments. They are saying that we are not going to progress on this, situation doesn’t look very good. Sonia: What about the other stressed sector, power generation? Is there any recovery at all that you have seen over there or are there higher amount of stalled projects there as well?A: No, there is nothing new which is alarming on the power project as yet. There is a shipyard project that has gone down, there are a few other projects but these are the big ones. So, power projects have not made headlines this time for getting stalled or abandoned.Latha: If you have to give a sectoral view of even the expansions or the un-stalling of projects, where is there any joy? Are you seeing something in road projects which is heartwarming or power projects or power transmission projects, where is the sectoral hope? A: I think I will be torturing the data too much to speak to say there is joy anywhere. So, no, there isn't any joy anywhere really speaking. The largest investment has gone to electronics and so Foxconn has announced some big investment but they are still hunting for a place to do that in Maharashtra. The other one was the Television Vedanta project which is in electronics and this is all in response to the Prime Minister’s or the government’s announcement of Digital India. So, some companies go out and say okay we will manufacture some LCD fabrication plant, somebody will make something else, so, it is in response to these big events. So, if remove this then all the joy goes away and this doesn’t look much joy anyway.Sonia: One of the big hurdles, we have been speaking for so many years now and the biggest hurdle has been the land acquisition issue and of course also environmental clearances. A couple of months back, the government was making some effort to clear that hurdle or speed up the land acquisition problems, has there been any resolve to that or is that still one of the biggest reasons why projects are getting stalled? A: Now you don’t exactly hear a person complaining of land acquisition and environmental clearances as much. New things have come up and they all need to be traced back to something else. So, somebody says that we are not interested in this project anymore but they don’t say why or somebody says that we have got a funds problem but the funds problem reflects maybe a land problem or a delay in an environmental clearance problem. Once you have so many delays you get a funding problem as well.So, now I think we are getting into an era where there is a confounding, there is complicated pyramid of problems piling up one over the other and it is then difficult to say which one is the prime reason for projects getting stalled. So, it isn't so linear anymore, it is more like a pyramidal structure of problems and I don’t see them getting resolved. One more thing is that we have on paper projects worth about Rs 7 lakh crore which are scheduled to get completed this year. Last year there were about Rs 8-8.5 lakh crore worth of projects that are scheduled to get completed. They have made progress and they should get completed but less than half get completed. So, I think there is something going on which is still holding up the investment cycle from picking up. Latha: The market or for that matter India Inc has been clinging to two data points. One that the government’s capex April to August has shown a remarkable increase over the comparable period last year as well that a lot of road projects have actually been bid out. How would you tackle both these, any government investments that you can see and for that matter road projects? A: The capex service will not show this up too much because the road projects were announced quite some time back. They are under implementation. They were supposed to spend money on that and give out contracts and those contracts are being given out now. So, this is progress. However, the data that we compile will not show this up. Similarly, when the government spends on capex, they are for projects announced earlier. So, what is measureable in our system is that a) when do you announce a project b) when do you complete a project or if it gets stalled in between. So, there is hope in the government spending money, road projects being bid out so there is hope over there but that doesn’t show up in the numbers till they get commissioned.Latha: In the completion run rate you don’t see any improvement? What were the numbers in the completion run rate in the September quarter vis-à-vis previous quarter? A: It is unfair to look at that number because it is still too early. Information comes with a little lag so if you look at the numbers now they look depressingly low but that is misleading.