Industry's optimism about the investment climate has waned, with new investments declining sharply in 2015. CMIE chief Mahesh Vyas told TCA Sharad Raghavan in an email interview that the economic environment does not enthuse enterprise to invest and the failure to amend land acquisition laws has dampened investor confidence. Excerpts:
What are your key takeaways about the state of the economy?
The December 2015 investment data show that there is a fall in the announcement of new investment projects. This fall was quite sharp compared to the new investment levels seen in the preceding quarter and also in the corresponding quarter a year ago. Investment trends indicate that there is a sustained fall in new investment announcements and in completion of projects. In 2015, new investments and completion of new projects were lower than they were in 2014. This fall in investments indicates that the economic environment does not enthuse enterprise to investment and create additional capacity or employment. Such a situation has persisted since 2012-13. Expectations of a turnaround have been belied. It would be difficult to maintain the current growth rates if industry is not enthusiastic on new investments.
What do you attribute to the sharp decline in the number of stalled projects?
Since the slowdown in investments in 2012-13, a number of projects that were unviable have been abandoned or shelved. Many were stalled during this period. Over the nearly four years since this trend began as a number of existing projects have been abandoned/shelved/stalled, the stock of investment projects that could be stalled or abandoned has reduced. As a result, we see a sharp fall in this number.
Secondly, post May 2014 after the new government took over, expectations were raised regarding the viability of projects. Optimism was back. As a result, the number of stalled projects has reduced. Thirdly, investment proposals have been cautious in the past couple of years and small in numbers. As a result, the potential number of stalled projects is low.
Could it be that the stalled projects have come down because they have simply been abandoned or shelved?
This is only a part of the reason.
What could be behind the huge fall in new project announcements?
There are a number of reasons. First, expectations of land acquisition bill changes have been belied. Second, commodity prices have fallen too sharply. Third, domestic and global demand growth has been tepid. Therefore, fourth, capacity utilisation is low. Fifth, balance sheets of banks and corporates are stretched.
