Policy inertia, flip-flops and uncertainty in existing policies and governance deficit combined with several other blocks including plummeting profitability and increasing strain on cash flows are really sapping the investment spirit of India Inc. Thus, industrial entrepreneur memoranda (IEM) and the entailed project investment taken on record by Secretariat for Industrial Assistance (SIA), an important indicator on project start-ups, dropped in June to six months low of 173 in number and over five years low of Rs.135 billion in outlay. The preceding month had seen 220 IEM (outlay: Rs.464 billion) and June last year 207 (outlay: Rs.279 billion). In fact, some revival seen in project start-ups during January-March period, which saw a spurt in IEM to 694 from 559 during October-December 2012 following a flurry of policy announcements that kindled hopes of a return to governance proved short-lived and the number of IEM dropped back to 615 during the Q1 of the ongoing fiscal.

Taking a little longer period, the number of IEM declined from 4,248 during the fiscal 2011 to 3,539 in the following year and 2,758 during 2013. The fall in capital outlay was steeper; from Rs.16.5 billion to Rs.13.4 trillion in 2012 and Rs.5.3 trillion in 2013, which indicates that investment aversion was more pronounced in mega projects.

During the first half of 2013, 1,309 IEM were filed that had envisaged outlay of Rs.2,330 billion, against 1,497 IEM for Rs.3,507 billion in the corresponding period of 2012. On a completed calendar year basis, the number of IEM showed a decline from 4,296 in 2010 to 3,868 in 2011 and 2,827 in 2012. The envisaged outlay in these start-ups declined from Rs.17.32 billion in 2010 to Rs.15.38 trillion in 2011 with a sharper drop to Rs.5.7 trillion in the following year. Between 2012 and 2011, capital outlay fell vertically from Rs.7.8 trillion to Rs.1.4 trillion in electrical equipment sector; the number of IEM in this sector too fell from 348 to half this level in 2012. The other sectors recording noticeable decline in investment commitments were metallurgical industries (from Rs.2.7 trillion to Rs.1.4 trillion), textiles (from Rs.262 billion to Rs.148 billion), sugar (from Rs.167 billion to Rs.56 billion) and cement & gypsum (from Rs.737 billion to Rs.377 billion). For metallurgical industries, electrical equipment and cement & gypsum, 2012 was the second straight year of waning investment interest. However, there were some industries which showed contrary trends during 2012: capex commitments in chemicals increased from Rs.377 billion to Rs.743 billion, in fertilizers from Rs.90 billion to Rs.104 billion, in prime movers from Rs.10 billion to Rs.15 billion, in transportation industry from Rs.100 billion to Rs.246 billion and in drugs & pharmaceuticals from Rs.67 billion to Rs.83 billion.

Gujarat with Rs.1.26 trillion envisaged outlay in 472 IEM was numero uno in terms of capital outlay during 2012. The state was followed by Chhattisgarh with Rs.796 billion in 78 projects, Andhra Pradesh with Rs.703 billion in 306 projects, Maharashtra with Rs.702 billion in 533 projects and Odisha with Rs.636 billion in 57 projects. These five states accounted for a little less than three-fourths of IEM- capex commitments during the year. While these five top rankers as also most of the other states got lesser capex commitments vis-à-vis 2011, Jharkhand got more capex proposals (Rs.103 billion against Rs.32 billion), Himachal Pradesh ($48 billion against Rs.15 billion) and Assam (Rs.28 billion against Rs.12 billion)
Electrical equipment accounting for around 23 per cent of total IEM capex led among sectors and Gujarat with 24 per cent of total capex was forerunners among the states in the first half of calendar year 2013.

Projects completed
During 2012, 574 projects were commissioned in terms of information filed in part B of IEM, which involved capital outlay of Rs.822 billion, against 474 projects worth Rs.129 billion in 2011. Cement & gypsum industry witnessed completion of 26 projects for Rs.61 billion, chemicals & fertilizers 65 projects for Rs.121 billion and metallurgical industries 65 projects for Rs.212 billion outlay. Gujarat, the top state in terms of IEM filed also led other states with 153 projects for Rs.496 billion getting commissioned during the year. Andhra saw completion of 87 projects for Rs.84 billion and Maharashtra with 87 projects for Rs.75 billion. Metallurgical industries, which saw completion of 26 projects for Rs.181 billion and Maharashtra 54 projects involving capital outlay of Rs.208 billion were prominent in 249 implemented IEM (outlay: Rs.438 billion) in the first half of 2013.

The information on project completion could be lacking terribly as entrepreneurs may not be prompt in filing of project completion reports. By the way, there is little monitoring by SIA after the grant of IEM, like shelving of projects, withdrawal of application, changes in scope of projects, project cost escalation, progress of projects, etc. This limitation takes most of the shine off this otherwise significant SIA data from the point of policy formulation.

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