If there is one true test of the economic momentum strengthening, that has to be a substantial rise in investment demand. We all are much aware that in the preceding slowdown; a lot of projects were stalled for the lack of proper policies, delays, bureaucratic hassles and other such issues. However, things are improving on this front.
As reported in Firstpost, Centre for Monitoring Indian Economy (CMIE) statistics suggest that the value of stalled projects has declined substantially by approx 152% to Rs 793 bn at the end of June 2015 quarter, as compared to Rs 2,000 bn a year-ago for the same period. The stalled projects as percentage of GDP have also been declining gradually. During March 2014 quarter, the stalled projects formed approx 8.4% of the GDP. This share is now down to 6.6% of the GDP for June 2015 quarter.
While this seems like very good news indeed, dig a little deeper and one realizes that this sharp fall in the stalled projects is not only due to project clearances. In fact, it has been due to lack of investments and scrapping of projects. It is imperative to note, there have not been new investments during the quarter. In fact the new projects have seen a second straight quarter of decline. Further, various projects have been scrapped too. This is largely done as these projects become unviable due to delay making them costly or there has been slowdown in demand. These two have been key reasons for the decline in the stalled projects in the country.
Land acquisition and related issues, environmental clearances; supply bottlenecks etc continue to hamper the project approvals. While the government is keen to resolve these issues, until these roadblocks and hurdles are removed, investment cycle cannot be expected to revamp.
The present government is working towards policy reforms, but it also needs to take active steps for rapid clearances of more projects. Clearances for stalled projects is crucial for economic growth.