Why aren’t the cleared projects getting executed?
For several years, the narrative has been one of how, thanks to policy paralysis, investments were not taking off—naturally, then, GDP growth rates were what they were. To fix this, once the UPA government brought back the dynamic P Chidambaram to the finance ministry—there was also the issue of the damage wreaked by the retrospective taxes—he ensured a central project monitoring group cleared projects. Since its inception in June 2013, based on data from the project monitoring group, a total of 178 of 464 projects have already been given all clearances and these add up to around Rs 6.5 lakh crore worth of investments—while roughly 2.5 times this amount still remains to be cleared, what has been fixed is a significant amount. The question, then, is why this is not showing up in either the credit being extended by banks or in the monies being raised by corporate India from other sources like global debt markets or equity markets in India? Even if you assume a dramatic increase in credit growth in the second half of the current year, as Macquarie Research points out, credit growth in the country will be at its lowest since 1997. Add in the money raised from IPOs or other sources, and the numbers naturally change, but they still don’t give you a robust pipeline of money flows.
All of which make you suspect that while the policy paralysis narrative was correct, it never captured the complete reality. So, for instance, apart from the central clearances that have been given, there are local level clearances or land purchases that are proving to be a big hurdle, especially now that the Land Acquisition Rehabilitation and Resettlement Act is in place. In other words, there is the possibility that the database is not fully capturing events on the ground.There is, in addition, another reality that most are ignoring, that of the projects simply not being viable any more. Take any of the big road projects that developers like GMR and GVK drove off last year due to various clearances not being in place. While those clearances may now have been obtained, the fact of the matter is that these projects simply don’t make economic sense anymore, indeed that is why a separate committee was set up under the then PMEAC chairman C Rangarajan to examine what measures could be adopted to make these projects viable—what the committee recommended was not acceptable to the developers. Similarly, steel plants set up to cater to Chinese demand are not viable anymore given how, thanks to Chinese demand collapsing, global commodity prices have crashed. It is important for the government to keep pushing to get all clearances in place, but it is equally important to realise that the investment cycle isn’t going to revive till overall demand also starts to look more promising. Ironically, in the areas where firms have a lot of money to invest—telecom and petroleum—the government continues to drag its feet and in the case of defence manufacturing, the other big potential area for investment, the government decided to give in to local demands and restricted FDI levels to just 49%.