High investment, poor implementation
Dr. M.S. Kapadia
There were 22,883 projects under various stages of
implementation in the country at the end of 2007-08, according to the 30th
quarterly Survey of Projects Investment by ProjectsToday. These projects had a
total envisaged capital outlay of Rs 30.83 trillion, indicating a healthy 21.3
per cent YoY increase, up from the 17.7 per cent rise a year ago.
Project implementation ratio surrogates projects relatively under more active
implementation and is measured as a proportion of investment of projects under
execution and partially completed to total projects investment.
The ratio declined to 42.5 per cent in 2007-08 after it had remained steady at
around 44 per cent over 2004-05 to 2006-07. Before this, in the current
millennium the ratio had steadily improved from 37.1 per cent in 2000-01 to 40.8
per cent by 2003-04.
From this pattern, on the flip side, we may generalise that a majority of
projects stock at any point of time constitute those projects that are on
drawing board, or in planning/proposal stage. What is required here for their
speedier progress into active implementation stage is removing policy
ambiguities, as also faster and effective clearances from various authorities.
The other segment that constitutes live projects needs financial, physical and
project managerial resources, and support from various authorities to see that
they come up on time without cost runs constitute.
Irrigation has traditionally enjoyed high implementation ratio of around 80 per
cent, but as the projects here lack adequate budget and bureaucratic commitment,
they suffer frequently from time/cost overruns. The power sector that has just
around 30 per cent implementation rate is beset with host of policy constraints
and bureaucratic hurdle at the Centre and state levels. The situation is
gradually improving after the entry of private sector in this field.
In manufacturing, iron and steel has the lowest implementation rate of around 26
per cent, which reflects the total anarchy in terms of land and resettlement
issues, allocation of coal and iron ore mines, etc. But, this is hopefully a
transitory phase and once the issues are sorted out, the sector would see
significant improvement in implementation. Textiles and petroleum refineries
have 77-78 per cent implementation ratio, which would mean that projects in
these sectors are actively implemented.
Among the states, Orissa experienced steep decline in implementation rate with
pace in 2007-08 working out to only 21.7 per cent, a half of the all-India
average. Mega steel projects that pushed up the state to the second rank in
terms of projects investment in the country have not progressed beyond proposal
stage due to fluid policy environment on various issues.
Likewise, West Bengal that had decent 40 per cent implementation rate in 2005-06
and 2006-07, saw the pace drop to 28 per cent in 2007-08, while announcement of
mega projects pushed up the state rank from 7th to 4th in all-India ranking.
Maharashtra, Gujarat and Andhra Pradesh, which have remained among the top
rankers, have enjoyed much better implementation pace in the country. Karnataka
(51 per cent) and Tamil Nadu (49 per cent) were among the states that recorded
sharp improvement in implementation pace in recent years.
Trends by industry
The share of manufacturing projects in investment was on decline till 2003-04 to
reach 15.8 per cent, but got on the upswing thereafter to scale to a new high of
25.1 per cent by 2007-08. The power sector lost its share in the total project
outlay pie from 35 per cent in 2000-01 to 31.7 per cent by 2007-08 and mining
from 4.8 per cent to 3 per cent. Services & utilities gained in share from 34
per cent to 41.5 per cent between 2000-01 and 2004-05, but lost partly to 34.7
subsequently (till 2007-08). Irrigation lost in share from 7-8 per cent over
2000-01-2005-06 to 5.7 per cent in next two years.
In services & utilities, envisaged investment in road sector projects shot up
170 per cent to Rs 2.67 trillion between 2000-01 and 2007-08. The power
distribution sector investment rose 4.5 times to Rs 89,504 crore and that in
industrial parks including SEZ over ten times to Rs 1.12 trillion. Real estate
capital outlay mounted over two-fold to Rs 44,609 crore. Railways have Rs 1+
trillion worth of projects under implementation. Projects under community
services have Rs 84,639 crore of envisaged outlay. Water & sewerage pipeline &
effluent treatment plants, largely under government domain, are among the major
sub-sectors in this segment.
The share of manufacturing industry in aggregate project profile had dropped
from 18.5 per cent (in envisaged capital outlay) in March 2001 to a low of 15.2
per cent in September 2002- the period of a slow-down in overall investment, but
rose steadily thereafter contributing significantly to investment upswing.
u One-half of the investment in manufacturing projects in 2007-08 was in the
iron and steel industry that has seen unprecedented investment interest in
recent years. Thus, as at the end of 2007-08, there were 618 projects with total
envisaged outlay of Rs 307,012 crore that is ten times Rs 29,203 crore seven
years back. Non-ferrous metals would see total investment of Rs 103,938 crore.
u The interest in cement, which had waned till June 2002, revived in the
subsequent period, with investment in cement and asbestos shooting up to Rs
48,524 crore by 2007-08, nearly seven times Rs 7,511 crore as of mid-2002.
Obviously, with accelerated project and infrastructure investment, cement prices
improved substantially; and rising sales and bottom line prompted investment
programs in the industry.
u There were 171 projects in the transport equipment industry, which would
involve Rs 28,994 crore investment against 103 projects with Rs 10,377 crore
investment seven years back.
u Textiles have witnessed relatively significant investment interest in last
three-four years. Paper and food products were among other industry groups that
enjoyed heightened investment activity over the period.
u Investment interest in petroleum refinery has been sustained. There were 61
refinery projects with Rs 133,722 crore.
u Investment interest in fertiliser industry seems to have waned over the
period. Total envisaged investment dropped from Rs 29,930 crore in 2000-01 to Rs
7,903 crore in 2007-08.
u Investment in capacity augmentation in machinery manufacturing that make
project investment possible has declined to Rs 16,992 crore from Rs 28,780 crore
The rising trend of public sector's share in investment pie that saw a peak of
67 per cent in 2005-06, was reversed with the share dropping to 60 per cent in
2006-07 and 55 per cent in 2007-08. Another noteworthy observation points to a
sharp rise in private Indian corporates in investment outlay pie from 24 per
cent in 2003-04 to 42 per cent by 2007-08, side-by-side a steep decline in the
share of foreign private sector from 12 per cent to only 3 per cent over the
The last four-five years have seen booming profits and obviously buoyed by
strong finances, India-bred entrepreneurs are willing to take longer term
investment stake particularly in industry and infrastructure building. The slide
in envisaged investment under MNCs could reflect partly policy confusion on
majority equity stake for MNCs in particularly infrastructures. Also, a
significant part of the surge in FDI seen in recent years has been into services
sector, minority interest in industrial projects as also M&A activities.
Maharashtra plays host to one-tenth of the country's project investment. Another
observation on datasets says that most of the advanced states have maintained
their prominence in project investment, barring a meteoric rise of Orissa, a
relatively backward state, to be part of the select club of most-favoured
investment destinations. West Bengal that had cornered around 4-5 per cent of
investment till 2006-07, steeped up its share to 7.8 per cent in 2007-08 that
pushed the state among the top four investment-destinations though the 28 per
cent implementation pace is much below the national average of 42.5 per cent.
Gujarat has ensured its place among the top-5 rankers, but its share in total
investment has declined from 11 per cent in 2000-01 to around 8 per cent over
2003-04 to 2007-08. Among the other states, Jharkhand and Chhattisgarh improved
their share from 1.8 per cent to 3.8 per cent and 1.3 per cent to 4.1 per cent,
respectively over the first eight years of the new millennium. Orissa, Jharkhand
and Chhattisgarh have hogged limelight in recent years due to announcement of
several mega projects in ferrous and non-ferrous metals and associated
[May 19-25, 2008]