INTRODUCTION:

The construction industry is an integral part of a country's infrastructure and economic development and an essential contributor to the development process¹. Spread in almost all the basic sectors, as it does such a wide spectrum, construction becomes the basic input for socio-economic development. Besides, the construction industry creates substantial employment and provides a growth momentum to other sectors through backward and forward linkages. It is essential, therefore, that this fundamental activity is nurtured for the healthy growth of the economy. Construction industry in India consists of over 2000 listed firms. The sales of the construction industry grew from Rs. 54,409 crores in 2004-05 to Rs. 270,506 crores in 2012-13 and started declining; in 2013-14 it became Rs. 266,445 crores. Currently, i.e., 2014-15 the sales of the construction industry is over Rs. 243,167 crores¹.

It is well recognized that the influence of the construction industry spans across numerous sub-sectors of the economy as well as the infrastructure development, such as industrial and mining infrastructure, highways, roads, ports, railways, airports, power systems, irrigation and agriculture systems, telecommunication systems, hospitals, schools, townships, offices, houses and other buildings; urban infrastructure, including water supply, sewerage, and drainage, and rural infrastructure². Thus, it becomes the key input for socio-economic development of an economy.

A 'construction project’ is a high value, time bound, special construction mission of creating a construction facility or service, with predetermined performance objectives defined in terms of quality specification, completion time, budgeted cost and other specified constraints³. Project stalling has become an important issue arresting the growth of the Indian economy. According to Economic Survey (2015) of Government of India⁴ the public and private sector account for Rs. 1.8 and Rs. 7 lakh crores, respectively, of the total value of stalled projects. In terms of share in total, electricity and services dominate for both public and private sectors⁵, whereas manufacturing forms the major constituent of stalled projects in the private sector. One sector with a substantial number (and total worth) of stalled projects in both public and private sectors is electricity. At the end of third quarter of this financial year, 80 projects were stalled in the electricity sector out of which 75 are in generation and 5 in distribution, and 54 of these 80 are essentially private. It is significant to note that almost all the projects in electricity under the “private” category are in fact public-private partnerships, which affects the public sector directly. The private projects are held up overwhelmingly due to market conditions and non-regulatory factors whereas the government projects are stalled due to lack of required clearances.

It is evident that the stock of stalled projects has been rising at an alarming rate. Moreover, it is dominated by the private sector, especially in the last five years. At end of the third quarter of the current financial year, for every 100 rupees of projects under implementation, 10.3 rupees worth of projects were stalled, and the number for private sector stood at 16⁶.

Objective

The objective of this paper was to examine the project scenario of India and the relation between Gross Domestic Product and monetary value of projects under implementation.

RESEARCH METHODOLOGY:

Desk study research method was used for the study. Data was collected from Centre for Monitoring Indian Economy’s (CMIE) online database resources. The different aspects examined were dropping of projects, new investment announcements, monetary value of projects under implementation and Gross Domestic Product. Six projects from CMIE’s online database resources were selected at random for the case studies. Linear regression analysis was carried out to establish the relation between Gross Domestic Product and monetary value of projects under implementation.

Project Shelving:

Dropping of projects rose to an all-time high of Rs.13.52 trillion in 2014-15. At the same time, new investment announcements grew (Rs.10.27 trillion) to 2/3^rd of 2010-11. The data can be interpreted as an indication of a likely gradual transformation in India’s capital expenditure and economic growth scenario if dropping of projects can be arrested. The dropping of investments has gone up gradually from Rs.0.96 trillion in 2004-05. The ratio of projects dropped to outstanding projects has gone up from 4.14 per cent in 2004-05 to 8.57 per cent in 2014-15. Stalling/dropping of projects happens because promoters of all the projects in their initial stages re-asses their projects in the light of increased competition and uncertainties, comparatively weaker projects get dropped.

Table 1: Status of Project Implementation(Rs. Million)

Year	New investment projects announced	Investment projects completed	Investment projects dropped	Investment projects revived	Investment Projects Outstanding		Ratio of projects dropped to projects outstanding
Year	New investment projects announced	Investment projects completed	Investment projects dropped	Investment projects revived	Total	Under implementation	Ratio of projects dropped to projects outstanding
2004-05	4,053,846	1,024,173	958,976	7,390	23,175,550	11,889,065	4.14
2005-06	8,535,233	1,093,484	981,894	27	31,017,274	13,984,686	3.17
2006-07	17,009,734	1,912,013	1,575,814	91,556	48,970,643	21,345,716	3.22
2007-08	20,000,137	2,243,180	1,736,681	312,337	69,446,346	31,366,854	2.50
2008-09	22,448,841	3,046,631	3,463,294	109,730	93,680,413	43,840,457	3.70
2009-10	16,140,746	3,924,172	4,096,788	600,637	110,399,728	54,847,030	3.71
2010-11	16,072,310	3,474,073	3,773,832	544,873	129,451,643	69,650,402	2.92
2011-12	9,702,593	4,126,905	8,787,963	1,210,256	140,035,176	76,168,179	6.28
2012-13	5,181,930	3,668,718	8,514,299	504,563	145,178,416	80,858,620	5.86
2013-14	5,802,434	3,306,580	10,942,239	273,530	147,675,934	82,852,381	7.41
2014-15	10,273,389	3,672,689	13,515,450	1,936,552	157,693,334	87,303,618	8.57

Source: Economic Outlook, CMIE. Retrieved on July 22, 2015.

Fig. 1: Investment Projects Dropped (Rs. Million)

Source: Economic Outlook, CMIE. Retrieved on July 22, 2015.

The current dropping of projects accounts for 8.57 per cent of the outstanding investments. These projects have been shelved predominantly on account of different reasons. As per the data given in Table 2, 8.90 per cent unfavourable market conditions; 8.22 per cent lack of promoter interest; 4.11 per cent land acquisition problem; 4.11 per cent lack of funds; 4.11 per cent lack of clearances (non-environmental); 2.05 per cent lack of environment clearance; and 0.68 per cent fuel/feedstock/raw material supply problem. Forty nine SEZ projects were shelved during the quarter ended March 2015 due to dissatisfactory progress.

The data (Table 2) mentions the reason as ‘Others’ for 47.95 per cent of the projects while no reason is available for 19.86 per cent of the projects. In other words, we do not know the reason for 67.81 per cent or more than ¹/₃^rd of the stalled projects. The Economic Survey of Government of India states that the stock of stalled projects has been rising at an alarming rate and it is dominated by the private sector, especially in the last five years. At end of the third quarter of the current financial year, for every 100 rupees of projects under implementation, 10.3 rupees worth of projects were stalled, and the number for private sector stood at 16.

Table 2: Reasons for Stalling of Projects in March 2015 Quarter

Sr.No.	Reasons	No. of Projects	Percentage of Total	Total Investment (Rs. million)
1.	Lack of promoter interest	12	8.22	1,30,382
2.	Land acquisition problem	6	4.11	67,766
3.	Lack of funds	6	4.11	67,637
4.	Lack of environment clearance	3	2.05	44,500
5.	Unfavourable market conditions	13	8.90	42,740
6.	Fuel/feedstock/raw material supply problem	1	0.68	42,000
7.	Lack of clearances (non-environmental)	6	4.11	9,280
8.	Others	70	47.95	3,64,547
9.	Not available	29	19.86	55,215
	Total investments stalled	146	100.00	8,24,067

Source: Economic Outlook, CMIE. Retrieved on July 31, 2015.

Fig. 2: Reasons for Stalling of Projects in March 2015 Quarter

Source: Economic Outlook, CMIE. Retrieved on July 31, 2015.

Project Case Study

Some of the major projects listed in CMIE database and the reasons for dropping the projects are given below.

Ennore Multi-Product SEZ Project

The developer has expressed their unwillingness to execute the Rs. 12.7 billion ‘Ennore Multi-Product SEZ Project’, Development Commissioner (DC) has recommended for the cancellation in May 2015. The formal approval granted to the developer expired in July, 2011. Even after giving sufficient opportunities to apply for extension the developer did not apply and requested for cancellation of formal approval.

Gwalior Multi Services SEZ Project

SEZ Board of Approval (BoA) has cancelled formal approval granted to Gwalior Agriculture Co. Ltd's Rs. 200 billion Gwalior Multi Services SEZ Project in February 2015. The Board noted that the progress made by the company for the SEZ project is not satisfactory. The project has received formal approval in February 2008.

SEZ Board of Approval (BoA) has cancelled formal approval granted to Bentex Towers Pvt. Ltd's Rs. 81 billion Multi-Service SEZ Project 20 Feb 2015. The Board noted that the progress made by the company for the SEZ project is not satisfactory. The formal approval was granted in November 2006.

Chandigarh Prideasia Township project

The Chandigarh Housing Board has rejected the additional claim of Rs 146 crore, made by Parsvnath Developers Limited, saying that both parties had accepted the arbitrator’s award after properly examining it⁷. This Rs. 260 billion Chandigarh Prideasia Township project was announced on 6^th October 2006, construction work was commenced on 30^th September 2007 and abandoned on 20^th January 2015.

Tilaiya Ultra Mega Power Project

Rs. 250 billion Tilaiya Ultra Mega Power Project, Build Own Operate project, of Jharkhand Integrated Power Ltd. was expected to complete its Tilaiya Ultra Mega Power Project by December 2018. The project will have six units of 660 MW each. Letter of Intent (LoI) implementation of the project was started on 12^th February 2009. Power purchase agreement) signed on 7^th August 2009, Coal linkage granted 22^nd April 2010, land acquisition problems started on 21^st June 2012 and project contract cancelled 28^th April 2015 due to land acquisition problems. Out of 1,700 acres required for the project, the state had acquired only 417 acres.

The Jharkhand government has recommend the Union government to consider fresh bidding for the Tilaiya Ultra Mega Power Project for offering it under the 'plug and play' model proposed in this year's Union budget. As per this model all regulatory clearances will be put in place before a project is awarded to a private developer through a transparent auction⁸.

Churchgate-Virar Elevated Rail Project

The Rs 240 billion ‘Churchgate-Virar Elevated Rail Project’ to be implemented on public private partnership mode has been put on hold after the state government questioned its need. It argued that the Metro III project between Colaba and Seepz partially traverses on alignment similar to the elevated corridor⁹. Implementation was stalled on 26^th April 2014. Mumbai Railway Vikas Corporation (MRVC) is now planning to construct elevated corridor between Virar and Andheri at an estimated investment of Rs.9,000 crore. The revised project will come up on Engineering, Procurement and Construction (EPC) mode with the stretch of 40 km. Initially, the plan was to construct Churchgate - Virar Elevated Rail corridor, but it was dropped due to lack of interest from private firms.

Madhya Pradesh Aluminium Plant Project

Mesco OMC Mining Corpn. Limited’s Rs. 31 billion Madhya Pradesh Aluminium Plant Project was shelved due to the pending clearances on mining concession.

Projects Under Implementation

A glance at share of aggregate value of projects under implementation reveals that electricity and transport sector continues to grow. Whereas, power generation growth in India decelerated in June 2015, according to the data released by the Central Electricity Authority¹⁰. At the same time share of aggregate value of projects under implementation in education, irrigation and commercial complexes sector demonstrates a decline (Fig. 3). The share of the commercial complexes sector in aggregate value of projects under implementation (all sectors) in 2006-07 was 12.6 per cent. It declined to 5.03 per cent in 2013-14. New investment projects announced has also got a downward trend. But the new project announcements data of 2014-15 show an increase to Rs. 10.27 trillion.

Fig. 3: Aggregate Value of Projects Under Implementation - Share of Different Sub-sectors and New Investment Projects Announced (Rs.Trillion)

New Investment Announcements:

New investment announcements declined to Rs.10.3 trillion in 2014-15. It has almost doubled from previous year. However, to a large extent new investment announcements are less compared to 2008-09. In 2008-09 it was Rs.22.4 trillion. This fall in new investment announcements does not imply any anticipation of slowdown in demand from the economy.

The new investment announcements started growing from 2004-05. From Rs.4.3 trillion in 2004-05, they increased rapidly to Rs.22 trillion in 2008-09. This pushed up the outstanding investments from Rs.23 trillion in 2004-05 to Rs.158 trillion in 2014-15. Despite a fall, the new investment announcements have remained higher than the projects completed so far, thus leading to a constant rise in the project pipeline. Project completion data indicates a stagnation since the project completion in last three years is remaining as Rs.3.6 trillion. In 2011-12 it was Rs.4.1 trillion, an all time high from 1995-96.

Even though, CMIE reports that the first quarter of fiscal 2015-16 started off with commissioning of 300 projects with investments worth Rs.1.26 trillion makes us believe that the investment flow is heading for a take-off again. But the report further says that commissioning of road projects were down by 40 per cent on a year-on-year basis.

GDP and Monetary Value of Projects Under Implementation:

Data on Gross Domestic Product (GDP) and monetary value of projects under implementation was collected from CMIE database and presented in Table 3. The data was used for carrying out linear regression analysis to establish the relation between GDP and monetary value of projects under implementation. The result of the analysis is presented below.

The equation of the straight line relating GDP and monetary value of projects under implementation is estimated as: GDP = (27918174.74) + (0.33) monetary value of projects under implementation using the 9 observations in this dataset. The y-intercept, the estimated value of GDP when monetary value of projects under implementation is zero, is 27918174.74 with a standard error of 949277.27. The slope, the estimated change in GDP per unit change in monetary value of projects under implementation, is 0.33 with a standard error of 0.02. The value of R², the proportion of the variation in GDP that can be accounted for by variation in monetary value of projects under implementation, is 0.9832. The correlation between GDP and monetary value of projects under implementation is 0.9916.

A significance test that the slope is zero resulted in a t-value of 20.25. The significance level of this t-test is 0.00. Since 0.00 < 0.05, the hypothesis that the slope is zero is rejected.

Table 3: GDP and Monetary Value of Projects Under Implementation Rs. million

Year	Gross Domestic Product at Constant Prices (Base Year 2004-05)	Projects Under Implementation
2005-06	32,530,720	13,984,686
2006-07	35,643,630	21,345,716
2007-08	38,966,360	31,366,854
2008-09	41,586,750	43,840,457
2009-10	45,160,710	54,847,030
2010-11	49,185,330	69,650,402
2011-12	52,475,290	76,168,179
2012-13	54,821,110	80,858,620
2013-14	57,417,910	82,852,381

Source: Economic Outlook, CMIE. Retrieved on July 22, 2015.

FINDINGS AND CONCLUSION:

The above analysis of project scenario of India reveals that the dropping/shelving of investment projects are increasing. The current dropping of projects accounts for 8.57 per cent of the outstanding investments. The stock of stalled projects has been rising at an alarming rate and it is dominated by the private sector, especially in the last five years. The dropping of projects is largely due to increased competition and uncertainties. Project promoters, in their initial stages, re-asses their projects in the light of increased competition and uncertainties, relatively weaker projects get dropped. The study analysed six major projects in India for examining reasons for the dropping of projects and found that the reasons differs from project to project: progress made by the company is not satisfactory; improper feasibility study; pending clearances; and land acquisition problems. The latest data provided by CMIE lists unfavourable market conditions; lack of promoter interest; land acquisition problem; lack of funds; lack of clearances (non-environmental); lack of environment clearance; fuel/feedstock/raw material supply problem as the reasons for stalling of projects.

The study found that: (1) the dropping/shelving of investment projects are increasing; (2) share of aggregate value of projects under implementation in education, irrigation and commercial complexes sector, in the total project investment, indicates a decline; and (3) new investment announcements are declining.

The study established the relation between Gross Domestic Product and monetary value of projects under implementation by carrying out a linear regression analysis. The significance level of the t-test is 0.00. Therefore, the stagnation in project completion of investment projects can affect the development of manufacturing and service sectors and subsequently employment, income and aggregate demand and thereby the faster rate of growth of the economy. Even otherwise, if the infrastructure development is at a slow pace, the manufacturing can get affected. An elevated demand for goods and the failure of the producing sectors to pick up the demand through increase in supplies will result in a higher consumer price index, i.e., a higher level of inflation which can become detrimental to the growth and development of the country.

REFERENCES:

1. Government of India (2002), Tenth Five Year Plan: 2002-07, Planning Commission, p. 847.

2. (2007), Eleventh Five Year Plan: 2007-12, Planning Commission, p. 239.

3. Chitkara, K.K. (2011), “Construction Project Management - Planning, Scheduling and Controlling”, 2^nd Edition, Tata McGraw Hill.

4. Government of India (2015), Economic Survey 2014-15, Ministry of Finance, Department of Economic Affairs, Government of India, (Vol. 1), pp. 67-71.

5. Services includes Hotel and Tourism, Wholesale and retail trading, Transport services, Communication services, IT and other miscellaneous non-financial services.

6. Economic Survey 2014-15, Op. cit., p. 67.

7. http://indianexpress.com/article/cities/chandigarh/prideasia-project-chb-rejects-unjustified-additional-claim-of-rs-146-crore-by-parsvnath/99/

8. http://economictimes.indiatimes.com/industry/energy/power/jharkhand-government-bats-for-tilaiya-power-project-clearance-under-plug-and-play-model/articleshow/47508237.cms

9. http://timesofindia.indiatimes.com/city/mumbai/Elevated-rail-corridor-survey-underway/articleshow /28357009.cms

10. http://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport and nvdt=2015072415 2019236 and nvpc = 035000000000 and nvtype = INSIGHTS

Received on 06.11.2015 Accepted on 21.12.2015

Int. J. Tech. 5(2): July-Dec., 2015; Page 285-290

DOI: 10.5958/2231-3915.2015.00037.1