Quibbling with CMIE won’t get investments on track
While the government continues to try to convince business information firm CMIE to rejig some of the data on stalled projects in its CapEx database—as FE reported on Monday, it is saying that some of what CMIE lists as projects are mere intentions—it would do well to keep in mind there is plenty of other data, and from government sources at that, which corroborate the same story of a sluggish investment cycle. In other words, whether the government’s doubts over the quality of CMIE’s database are valid or not, government data is painting the same picture. Indeed, had the official data been pointing in one direction and CMIE in the other, all analysts who regularly use CMIE data would have commented on this obvious contradiction in the datasets. CMIE data, for instance, shows fresh investments added during the quarter rising from R164,118 crore in March 2014 to R569,179 crore in September 2014, and then slowing to R142,826 crore in the June 2016 quarter. Though CSO data on gross fixed capital formation (GFCF) doesn’t fully map on to the CMIE data, this also shows GFCF rising from 31.1% of GDP in the March 2014 quarter to 32.2% in the next quarter and then falling all the way to 26.9% of GDP in the quarter ending March 2016. In terms of annual growth, this fell from 9.6% in the December 2013 quarter to 1% in March 2014, jumped to 13.9% in June 2014 and then collapsed to minus 1.5% in the March 2016 quarter.
CSO data, it is true, does not have details of stalled/revived/new projects in the same manner that CMIE does, but if there was a very large revival of stuck projects or a sharp increase in new projects, this would show up in the GFCF data and, instead of falling, it would be rising sharply. According to a report in The Indian Express, the government had told Parliament that 315 stalled projects in July 2015 entailed an investment of R13.3 lakh crore; in February 2016, this was R12.8 lakh crore. Both numbers are consistent with the CMIE data which showed stalled projects at R9.7 lakh crore in the June 2015 quarter and R11.5 lakh crore in the March 2016 quarter. Even the capital goods index of the index of industrial production (IIP) suggests the same story, as do the order books of capital goods manufacturing firms over the past few years and capital goods imports. From January 2014, the capital goods index of the IIP rose more than 10% on just eight occasions while it has contracted in 13 months, with the highest being a contraction of just under 25% in April 2016. It is also important to keep in mind that, when the balance sheets of most Indian corporate groups are badly stretched, and when global growth is sluggish and that in trade even more so, this is only to be expected—indeed, roughly a fourth of the projects the government has taken up with CMIE for detailed scrutiny are described by CMIE as stalled due to promoters not being interested or not having the necessary funds. Getting CMIE to reclassify some of its projects isn’t going to move the needle on capital investments on the ground.