This is brief summary of Chapter 4 of the Economic Survey of India 2014-15. The slides will take you through the investment climate in India.

1. The Investment
Climate
Economic Survey 2014-15

2. Introduction
• The stock of stalled projects at the end of Dec. 2014
stood at ₹8.8 lakh crore or 7% of GDP.
• For every ₹100 of projects under implementation:
• ₹10.3 worth of projects were stalled
• For private sector, it is ₹16
• This chapter provides five key take-home messages and
two policy lessons

3. Key Take-Home Messages
• Stalling rate of projects increased at alarmingly high rate.
The rate is much higher for private sector.
• Good News: Rate has plateaued in last three quarters.
Down from 9 percent to 7 percent.
• Manufacturing and Infrastructure dominate stalled projects
in Private sector.
• Investment slow-down due to less financing by banks.
Leading to constrained future private investment.
• Equity market performing quite well.

4. Policy Lessons
• Public investment needs to step-in.
• Efforts must be made to revitalise the PPP model of
investment.
• An independent Renegotiation Committee needed.
• Need to distribute pain amongst stakeholders from deals
gone sour.

5. Pvt. Sector | Stalled Projects
• Stalled projects are alarmingly high and dominated by the
private sector.

6. Tapering in Last 3 Quarters
• Stock of stalled projects driven by two factors:
• Rate of stalling
• Rate of revival

7. Back in the Game!

9. An Analysis of Stalled Projects
Characterizing Stalled Projects
Dimension
Components
Ownership Public, Private (Indian),
Private (Foreign)
Sector Infrastructure: Electricity, Highways,
Airports, Construction
Mining: Coal, Iron
Manufacturing: Steel, Cement, Drugs,
Garments, Processed Food
Geography States
Value In rupees
Reason for Clearances: Environmental, LandFuel.
Stalling Other raw materials
Market: lack of demand, funds

10. Stalled Projects (by value) as a
fraction of GDP
Year Govt. Pvt. Total
2011-12 2.0% 5.7% 7.7%
2012-13 1.9% 6.1% 8.9%
2013-14 1.8% 6.5% 8.3%
2014-15
(till Q3)
1.4% 5.5% 6.9%
Source : CMIE and Central Statistics Office

11. • Private (585) & Govt. (161)
• Lack of promoter interest
• Lack of non-environmental clearances
• Land acquisition problem
• Unfavorable market conditions
• Lack of capital investment / shortage of fund
Top Reasons for Stalling across
Ownership

12. Source : CMIE and Central Statistics Office

13. Balance Sheet Syndrome
• Debt to equity ratio is a measure of financial leverage
that indicates the proportion of debt and equity used by
the company to finance its assets.
• It is rising for India at a fairly alarming rate.

14. Data

15. Findings
• It has been accompanied by high inflation
• The public sector is exposed to corporate risk in the form
of public private partnerships, and lending by the public
sector banks.
• Unlike many other countries with high debt to equity
ratios currently, India’s debt is almost exclusively financed
by public sector banks.

16. Impact on Firm Equity
• Increasing stalling rates of big projects
• Weak balance sheets
• Declining new investments in the private sector

17. Policy Reforms
• Expectation that the private sector will drive
investment needs to be moderated.
• Public Investment may need to step in to
recreate an environment to crowd-in private
sector investment in the short term.
• Efforts must be made to revitalize the public-
private partnership (PPP) model of investment.

18. Continued
• Creative solutions are necessary for
distributing pain equally amongst the
stakeholders from past deals gone sour.
• Solution- setting up of a high powered
Independent Renegotiation Committee.
• To involve external experts for a quick and
independent resolution of the problems.

19. To revitalise PPP
• Re-structuring the framework
Flaws in existing
design
Re-structuring
the Existing
Contracts
Needed
Modifications

20. Thank
You!