Bharat Rakshak

Logging fresh one-year high, India's exposure to US government securities reached $101.7 billion as the country purchased nearly $10 billion worth bonds in just one month.

The holdings crossed the $100 billion-mark in February, the highest level in more than a year, as per the latest data available with the Treasury Department.

In January also, India's holding had hit a one-year high of $91.2 billion.

Since Prime Minister Narendra Modi-led government came to the power in May last year, the country's exposure to such securities have been on the rise. In May last year, the holding stood at $70.1 billion.

India’s fiscal architecture is undergoing a radical overhaul this budget season. On Tuesday, the NDA government accepted the Finance Commission’s proposal to enhance tax devolution to states. This, coupled with efforts to rationalize and reduce centrally sponsored schemes (CSS) through the chief ministers sub-group of the NITI Aayog, and the repeated calls for cooperative federalism together suggest that decentralization to states is the new mantra.

Missing from this rhetoric of decentralization and cooperative federalism is any debate on the future of the third tier of India’s federal architecture—local governments. Indeed it’s almost as though the government is seeking to rewrite India’s federal story by limiting the focus to Centre-state relations. Yet, the twin combination of greater devolution of finances to states and the reduction of CSS afford a unique opportunity to re-script the role of local governments.

Despite the constitutional amendments of 1992, local governments have remained marginal players in India’s fiscal system. They have no tax base—revenues collected by local governments account for a mere 2.5% of the country’s total revenue pool—and are responsible for just 7% of total government spending.

The dominant narrative on devolution in India has focused on the reluctance of state governments to share power and resources. But the real blow to local governance came from the Centre and its penchant for CSS. The bulk of CSS finance subjects like health, education and sanitation are constitutionally within the domain of local governments. Rather than devolve powers, CSS ignored local governments and replaced them with an entirely new administrative structure. And as the CSS window enlarged, central ministries began to encroach on state governments’ discretionary powers to decentralize. States were forced to re-direct a large pool of their resources to contribute to their share of CSS and follow the Centre’s diktats. Karnataka, for instance, had to reverse its devolution policy and re-centralize powers for horticulture development in response to the National Horticulture Mission that chose to push money through a district-level mission office, instead of the district panchayat.

Genuine decentralization isn’t just a matter of devolving powers and resources to local governments. It requires careful administrative detailing to get the balance right between activities that are best implemented through standardized, centrally driven technocratic approaches—like curriculum design in the case of education and those that require a local knowledge and discretion—like monitoring teaching quality. In other words, genuine devolution to local governments is about fundamentally overhauling the delivery architecture. For a country whose delivery system is peopled with an overpaid, indiscipline and demotivated frontline, this is an opportunity that cannot be missed. Initiating this rethink and building the political capital to implement reforms is what the Panchayati Raj ministry and the central government’s think tank, the NITI Ayog, ought to focus on.

By ignoring local governments and seeking to rewrite India’s federal story in the context of Centre-state relations, Modi is presenting the country with a limited vision of state-building. India’s deep-rooted governance challenges can only be resolved through an imaginative re-think of our delivery systems. We need bold, ambitious reforms and, by the logic of his own efforts, Modi has an opportunity now to do just this.

Yamini Aiyar is a senior research fellow at the Centre for Policy Research and director of the Accountability Initiative.
T.R. Raghunandan is an adviser with the Accountability Initiative.

The combined index of eight core industries stood at 177.8 in March 2015, which was 0.1% lower compared with the index of March 2014

Well, it turns out that after all the hype and hoopla, after all those stirring words about good times in the offing, with a business-friendly, no-nonsense, pro-development government firmly in the saddle, the growth rate of the core sector for 2014-15 was a mere 3.5%, even lower than the 4.2% growth notched up in the previous year.

The conclusion is inescapable—things have gotten worse, not better.

Consider, for instance, the continuous slide in core sector growth from 6.7% in November 2014 to 2.4% in December, 1.8% in January, 1.4% in February and now to a negative 0.1% in March. The chart says it all.

Suraj wrote:Core sector has several components. I suggest digging and posting a breakdown of output growth in each one. Coal and refined petroleum output has fallen in the last year, one due to the coalgate scam and the Supreme Court canceling all the allotments, and second due to the general fall in hydrocarbon prices and demand lately.

Suraj wrote:Core sector has several components. I suggest digging and posting a breakdown of output growth in each one. Coal and refined petroleum output has fallen in the last year, one due to the coalgate scam and the Supreme Court canceling all the allotments, and second due to the general fall in hydrocarbon prices and demand lately.

1. The summary of the Index of Eight Core Industries (base: 2004-05) is given at the Annexure.
2. The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial Production (IIP). The combined Index of Eight Core Industries stands at 177.8 in March, 2015, which was 0.1 % lower compared to the index of March, 2014. Its cumulative growth during April to March, 2014-15 was 3.5 %.
Coal
3. Coal production (weight: 4.38 %) increased by 6.0 % in March, 2015 over March, 2014. Its cumulative index during April to March, 2014-15 increased by 8.2 % over corresponding period of previous year.
Crude Oil
4. Crude Oil production (weight: 5.22 %) increased by 1.7 % in March, 2015 over March, 2014. Its cumulative index during April to March, 2014-15 declined by 0.9 % over the corresponding period of previous year.
Natural Gas
5. The Natural Gas production (weight: 1.71 %) declined by 1.5 % in March, 2015. Its cumulative index during April to March, 2014-15 declined by 5.2 % over the corresponding period of previous year.
6. Petroleum Refinery production (weight: 5.94%) declined by 1.3 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 0.4 % over the corresponding period of previous year.
Fertilizers
7. Fertilizer production (weight: 1.25%) increased by 5.2 % in March, 2015. Its cumulative index during April to March, 2014-15 declined by 0.1 % over the corresponding period of previous year.
Steel (Alloy + Non-Alloy)
8. Steel production (weight: 6.68%) declined by 4.4 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 0.5 % over the corresponding period of previous year.
Cement
9. Cement production (weight: 2.41%) declined by 4.2 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 5.6 % over the corresponding period of previous year.
Electricity
10. Electricity generation (weight: 10.32%) increased by 1.7 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 8.0 % over the corresponding period of previous year.

This sentiment has echoed through the Foreign Institutional Investor (FII) community which has substantially down scaled its original projection for the growth of Sensex by this year end. Earlier reputed FII research houses were projecting the BSE Sensex to reach 33,000 by December 2015. Now they have formally re-rated it to remain flat, in the current range of 28,000 to 29,000.

Both Finance Minister Arun Jaitley and Prime Minister Modi declared last July that the economy had bottomed out decisively. But things have turned out differently. The real numbers on the ground are there for all to see. Reputed agriculture economist Professor Ashok Gulati, who is also a member of the agriculture cell at Niti Aayog recently wrote an article saying final growth figures for the farm sector in 2014-15 could be zero, even negative. This could have a spillover effect in 2015-16 given the ongoing distress in the farm economy and predictions of a weak monsoon. Since rural incomes have a big impact on demand for consumer products, we could see a delay in industrial growth recovery. Already we are seeing reports of how farm households have no surplus to spend on marriages and other social celebrations this year.

Industry is working at only 65 per cent capacity and there is very little sign as yet of an uptick in consumer demand. Industry typically starts planning for new investments when its usage of existing production capacity crosses 85 per cent to 90 per cent. Current capacity utilization is way below this threshold. This is also reflecting in the latest core sector production figures released by the government for the month of March. Core sectors like steel, cement,coal, electricity, crude oil, natural gas and fertilizers showed a negative growth in March. A shrinkage in growth has happened for the first time in 17 months. The consistently negative export growth so far this year is equally worrisome. Things are looking quite dismal, overall. So GDP growth of 7.4 per cent in 2014-15 could be an over-estimate even going by the new GDP series. The projection of 8-8.5 per cent GDP growth in 2015-16 also looks uncertain.

The investing class is largely disappointed with Prime Minister Narendra Modi because he promised them big legislative reforms relating to land acquisition, labour practices and tax practices. On all three counts the investors are somewhat disillusioned, though Modi continues to mollify them saying things will improve. On the predatory tax regime, foreign and domestic investors are far from satisfied. On land and labour law reforms, the Modi government has bitten off more than it could chew.

The investing class is largely disappointed with Prime Minister Narendra Modi because he promised them big legislative reforms relating to land acquisition, labour practices and tax practices. On all three counts the investors are somewhat disillusioned, though Modi continues to mollify them saying things will improve. On the predatory tax regime, foreign and domestic investors are far from satisfied. On land and labour law reforms, the Modi government has bitten off more than it could chew.

A shrinkage in growth has happened for the first time in 17 months. The consistently negative export growth so far this year is equally worrisome. Things are looking quite dismal, overall. So GDP growth of 7.4 per cent in 2014-15 could be an over-estimate even going by the new GDP series. The projection of 8-8.5 per cent GDP growth in 2015-16 also looks uncertain.

Both Finance Minister Arun Jaitley and Prime Minister Modi declared last July that the economy had bottomed out decisively. But things have turned out differently. The real numbers on the ground are there for all to see. Reputed agriculture economist Professor Ashok Gulati, who is also a member of the agriculture cell at Niti Aayog recently wrote an article saying final growth figures for the farm sector in 2014-15 could be zero, even negative. This could have a spillover effect in 2015-16 given the ongoing distress in the farm economy and predictions of a weak monsoon. Since rural incomes have a big impact on demand for consumer products, we could see a delay in industrial growth recovery. Already we are seeing reports of how farm households have no surplus to spend on marriages and other social celebrations this year.

Interestingly, a recent reply to an RTI application filed before the Finance Ministry revealed that only 8 per cent of all pending investment projects are stalled because of land acquisition problems. General market conditions (including global headwinds) and lack of promoter interest are cited as the bigger reasons. This sentiment seems to be affecting Modi's "Make in India" project as well.

The political narrative playing out has painted the Prime Minister as "anti-farmer" because of the manner in which his government is pressing on with the land ordinance in the midst of a general farm economy crisis. The strain of all this is showing on the PM now. Narendra Modi has become so defensive that he proclaimed twice within ten days that his government is not acquiring land or making policies for Mukesh Ambani. No Prime Minister has ever sought to communicate his or her policies in such a defensive tone.

Industry is working at only 65 per cent capacity

his is also reflecting in the latest core sector production figures released by the government for the month of March. Core sectors like steel, cement,coal, electricity, crude oil, natural gas and fertilizers showed a negative growth in March.

Auto parts makers have set their eyes on the revival of commercial vehicles segment to achieve a double digit growth for the industry.

Also, a revival in commercial vehicles segment is believed to improve the capacity utilisation for the original equipment makers (OEMs), who currently operate at around 65 per cent utilisation.

“The industry witnessed robust growth during 2009-10. So units had invested heavily for capacity addition. But due to subsequent slackness in the market, the capacity utilisation dropped,” added Mehta. He further maintained that because of the idle capacity, fresh investment towards heavy capacity addition may be slow.

According to the ACMA data, maximum investment for capacity addition took place during 2010-11 at around ₹10,000 crore, which subsequently fell to around ₹3,200-4,400 crore last year.

In the steel sector, companies are operating at about 80 per cent utilisation, while cement companies are operating at a decade-low capacity utilisation rate of 70 per cent, against 99 per cent in 2007-08. Engineering, power and certain pockets of the automobile sector, too, are operating at low capacity utilisation rates. However, there is a positive to this — companies with healthy balance sheets operating at low capacity utilisation could do well when demand picks up and, therefore, these may be investment-worthy candidates.

The total debt of India’s top 100 companies (except subsidiaries of multinational corporations) on the basis of market capitalisation stood at Rs 10.5 lakh crore in the year ended March 2011, according to the report. Since then, it has steadily grown to Rs 13 lakh crore in the year ended March 2012, Rs 15 lakh crore in the year ended March 2013, and to Rs 18.5 lakh crore the next year.

Indian companies, S&P says, have been investing for growth and in an expanding economy, have been comfortable with free operating cash flows. However, the problem arises from the pace of debt built over several years.

According to the report, debt in the utilities & infra sector has increased 2.5 times and in the metals & mining sector by 1.5 times in five years to the 2013-14. By comparison, the overall debt of all Indian companies increased by less than 1.5 times in the same period.

gakakkad wrote:there has been no significant flip flop... making FII profit tax free is a bad idea..

Finance Minister Arun Jaitley’s announcement of MAT exemption on certain incomes of foreign firms was a relief but the government should have clarified on the tax treaty benefits for past dues, tax experts said today.

Replying to a debate on Finance Bill in Parliament, the Minister said all capital gains from sale of securities as well as royalties, interest, technical services fee earned by foreign companies will be exempt from MAT, if the normal tax rate on such income is lower than 18.5 per cent.

Commenting on this, PwC Partner (Tax and Regulatory Services) Suresh Swamy said, “Finance Minister could have clarified that FPIs with treaty benefits would be exempt from paying MAT for past year. That would have given more confidence to foreign investors“.

He said probably clarity on these past tax notices would come after six months when the Supreme Court decides on the case of Mauritius—based Castleton Investment Ltd.

EY Leader (Business Tax) Sunil Kapadia said the foreign investors were looking for certainty and clarity in taxation matters from the Minister.

“The clarification does not provide what happens for taxation of past period. That still remains a controversial area,” Kapadia said.

This issue between foreign investors and government cropped up last year when the tax department started sending notices to FIIs to cough up MAT.

These notices were based on a decision by Authority for Advance Ruling, which directed Castleton to pay MAT in India on their book profits.

So far, the government has sent MAT notices for over Rs. 602 crore to 68 foreign investors.

The amendments to Finance Bill would bring relief to debt funds because interest income of debt funds will also be exempt from MAT from April this year.

Deloitte Haskins & Sells Partner Rajesh Gandhi said the announcement is positive for debt funds as MAT on interest would have been costly for them.

“The government has made it clear that going forward MAT would not be applied on foreign investors. Some clarification on FIIs being able to avail treaty benefits and not be subject to MAT should have been made clear,” Gandhi said.

Suraj wrote:LAB, labour laws etc don't really help here. This is a large scale balance sheet issue. What helps is a way to let infra companies restructure their debt load to lower rates, freeing up capital, and letting banks also lend more in the process. My guess is that if GoI accomplishes this quickly, industrial growth will rapidly increase again to mid 2000s levels of close to double digit growth.

One area, where the Modi government has clearly lost track is banking reforms. Modi and his finance team under Finance Minister Arun Jaitley have either underestimated or conveniently ignored the importance of critical reforms in banking sector such as paring government stake in micromanaged, capital-starved, corruption-prone state-run banks.

The only solution, if the government is serious about bringing in reforms in state-run banks, is to let go of the majority control in these entities and let private investments and expertise flow into these entities. The government can still ensure these banks continue to adhere to social sector objectives through banking sector regulations and keep their ownership diversified.
Paring government stake below 51 percent in state-run banks was a recommendation of PJ Nayak committee on banking sector reforms, which submitted its report in May, 2014 and something Fitch, in its warning on Wednesday, has reiterated.
"Ultimately, the RBI's recommendations directly target the reduction of government influence in the management of public sector banks. That said, government is likely to continue to exert considerable influence on state-owned banks over the near term unless more substantive reforms are put in place," Fitch has said.

The message from the raters is clear: The world is losing patience with the NDA government with respect to the promises for big reforms in the economy, beyond the small, incremental steps.

For all good reasons, the Modi government should show the political will to deal with critical banking sector reforms.

Highlights:
Capacity Utilisation (CU): There is broad co-movement between capacity utilisation and de-trended IIP manufacturing (Chart 1). CU at the aggregate level, remained at the same level in Q3:2014-15 as that of the previous quarter. However, it stood at a lower level from that in same quarter of the previous year (Table 1).

Order Books: The new orders growth showed a decline and became negative in Q3:2014-15 both on a year-on-year and quarter-on-quarter basis (Chart 2).

Inventory to Sales Ratio: The finished goods inventory to sales ratio declined to 17 per cent in Q3:2014-15. The raw material inventory to sales ratio increased in Q3:2014-15 as compared to the previous quarter. Both, raw material inventory to sales ratio (RMI/S) and finished goods inventory to sales ratio (FGI/S), remained more or less at the same level as that of same quarter of previous year (Chart 3).

RamaY wrote:Isn't it a good thing to have reduced inflation and lower CPI even if it means lower core sector growth as long as the HDI is improving?

Doesn't it mean the govt is removing inefficiencies and corruption?

Case in example is improved capacity utilization in power sector increased electricity generation without adding all that as new capacity. On the other end you add low energy consumption bulbs etc, you increase overall HDI without appearing to be doing much per many established indicators.

ShauryaT wrote: Index of Eight Core Industries

1. The summary of the Index of Eight Core Industries (base: 2004-05) is given at the Annexure.
2. The Eight Core Industries comprise nearly 38 % of the weight of items included in the Index of Industrial Production (IIP). The combined Index of Eight Core Industries stands at 177.8 in March, 2015, which was 0.1 % lower compared to the index of March, 2014. Its cumulative growth during April to March, 2014-15 was 3.5 %.
Coal
3. Coal production (weight: 4.38 %) increased by 6.0 % in March, 2015 over March, 2014. Its cumulative index during April to March, 2014-15 increased by 8.2 % over corresponding period of previous year.
Crude Oil
4. Crude Oil production (weight: 5.22 %) increased by 1.7 % in March, 2015 over March, 2014. Its cumulative index during April to March, 2014-15 declined by 0.9 % over the corresponding period of previous year.
Natural Gas
5. The Natural Gas production (weight: 1.71 %) declined by 1.5 % in March, 2015. Its cumulative index during April to March, 2014-15 declined by 5.2 % over the corresponding period of previous year.
6. Petroleum Refinery production (weight: 5.94%) declined by 1.3 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 0.4 % over the corresponding period of previous year.
Fertilizers
7. Fertilizer production (weight: 1.25%) increased by 5.2 % in March, 2015. Its cumulative index during April to March, 2014-15 declined by 0.1 % over the corresponding period of previous year.
Steel (Alloy + Non-Alloy)
8. Steel production (weight: 6.68%) declined by 4.4 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 0.5 % over the corresponding period of previous year.
Cement
9. Cement production (weight: 2.41%) declined by 4.2 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 5.6 % over the corresponding period of previous year.
Electricity
10. Electricity generation (weight: 10.32%) increased by 1.7 % in March, 2015. Its cumulative index during April to March, 2014-15 increased by 8.0 % over the corresponding period of previous year.

Small pooch - Why is Steel considered core and not Aluminium or Zinc - ideally it should be "metals"? Second does not the import numbers also affect the production? We may be importing some Steel and Cement. And importing is not always bad.

Suraj wrote:Why would an industrial production index care about imports ? The core sector data reports production data. Import data is not part of production data.

Hard bargain for soft GST rates

Jayanta Roy Chowdhury

New Delhi, May 3: The finance ministry will hold talks with state governments to fix a moderate GST rate of 16-18 per cent even as the Lok Sabha deliberates on the passage of the controversial constitution amendment bill on the proposed revenue regime this week.

Some state finance ministers had suggested a revenue neutral rate of 25-27 per cent as GST (goods & services tax). However, officials said such a high rate would raise prices, kill industry and shrink the economy, besides leading to high levels of tax avoidance.

"The whole idea of GST is to have a reasonable rate to encourage trade and industry and not to slap a high rate," said top officials.

Globally, the average GST rate is 16.4 per cent. It is 8.5 per cent in Southeast Asia, 19.5 per cent in the European Union, 10.8 per cent in the Asia-Pacific and 14.2 per cent in Latin America.

Finance minister Arun Jaitley is trying to get the states to see reason in accepting GST and a lower tax rate.

Officials said they were currently preparing presentations for states to get them on board.

The officials said it would be an uphill task but one which had to be done if states wanted to meet the twin objective of giving industry a fillip and raising their own earnings. It is estimated at moderate GST rates, the economy could grow 1.5-2 per cent as a host of contentious taxes would be eliminated and bureaucratic hurdle to the movement of goods curbed.

A report prepared by the World Bank said bureaucracy related to tax collection at state borders is a big reason why India's long-distance truckers are parked 60 per cent of the time.

The introduction of VAT at the beginning of the last decade had seen the economy growing at a faster rate along with state tax revenues. For instance, Bengal's revenue had risen 31.3 per cent after implementing VAT; Haryana's revenue rose 17.9 per cent; while that of Himachal Pradesh grew 28 per cent.

India's tax base is a meagre 10 per cent of its gross domestic product. In a country of more than 1.2 billion people, only about 35 million pay income tax. One of the best ways to raise this figure is to lower taxes to persuade more people to come clean rather than intimidate them into becoming evaders by raising taxes, officials said.

Already, the hike in the service tax rate in the budget to 14 per cent from 12.36 per cent is threatening a situation where the authorities may fail to meet the targets from this segment. If it is raised further because of high GST, it could hit the service sector, which contributes about 57 per cent to GDP. While growth in service tax collections stood at over 30 per cent in 2014-15, it was just above 15 per cent in the year gone by.

Officials pointed out that raising GST and with it the service tax to 25 per cent would simply "kill the service sector growth and may even result in its shrinking ... it would be like killing the goose even before it could hatch ."

Officials said they had initially worked with the assumption that the GST rate could be as low as 12 per cent - with 5 per cent for the Centre and 7 per cent for states.

"The fact that the Indian economy is still sluggish has made state governments squeamish about taking a leap and depending on lower taxes yielding higher revenue returns from increased trade," said officials. With time and objections from the states they had reworked their figures upwards but too steep a figure could put GST on the back-burner all together.

The government has to get the approval of 29 states for the tax reform to pass through.

The government hopes the Lok Sabha will vote on the constitution amendment bill this week, after which the Upper House will have to pass it. The states get to vote on the bill after that. While passing the bill in the Lower House should not pose a problem for the Narendra Modi-government with more than two-thirds majority in the House, Opposition parties which have a majority in the Rajya Sabha could create complications

Suraj wrote:The topic was about core sector output, and its breakdown. Bringing the topic of imports in to a discussion about domestic production data is just a source of confusion because you bring in a tangential topic in the process. Sure we import steel, but that's another topic.

According to the data provided by the Ministry of Finance in reply to an RTI application, only 8% of all the stalled projects are because of Land Acquisition reasons. The reasons for 1/3rd of the stalled projects is not known. And only 11 of the projects stalled because of Land Acquisition reasons involve projects for the poor and disadvantaged.

Gus wrote:well, what is the project amount involved in those stalled projects?

ShauryaT wrote:So comes down to cement and steel as the best indicators for infrastructure growth.

The companies that build big projects owe more than 3 trillion rupees ($48 billion), the result of a failed effort by the previous government to get businesses to help improve India’s infrastructure. The total amount of debt for Indian infrastructure companies is at its highest in more than a decade, affecting the overall economy because banks, fearing the loans won't be repaid, are reluctant to lend to other companies.

Debt levels have risen across Asia in the past five years and are now higher than they were before the Asian financial crisis in 1997. The borrowing has taken different forms in different countries. In China, giant state-owned companies borrowed the most, in Thailand and Malaysia, consumers took on debt, while in Japan, the government boosted its world-leading borrowing.

High debt levels could limit India’s ability to help drive global growth at a time when China is slowing and many of the world’s economies are weak. Foreign portfolio investors have poured $42 billion into Indian stocks and bonds over the past year, leaving them vulnerable to cracks in the country’s economy.

For years, the Indian government was the largest developer of infrastructure in the country. But in 2006, it decided to increasingly involve the private sector via so-called public-private partnerships. As India’s economy grew rapidly--at more than 9% between 2006 and 2008 — and capital was relatively cheap, companies bid aggressively to build roads, airports and ports.

Investments in infrastructure involving private partnerships touched $73 billion in 2010, a nearly tenfold jump from 2005, according to World Bank data. These projects typically involved 20% to 30% equity from the developer, and the rest was borrowed money, often from Indian banks.

The aggressive bids became costly when many projects stalled thanks to corruption scandals and lack of government approvals. Even completed projects such as toll roads aren’t paying off because traffic levels have been 20% to 30% lower than builders’ initial expectations, according to Indian research firm ICRA Ltd.

For Indian builder Soma, delays have been costly. The company just got all of the necessary approvals for several projects that were supposed to have been completed by 2011 and 2012, said Mr. Maganti, the firm’s managing director.

“This delay has had huge cost implications for us,” said Mr. Maganti. He said both interest costs and the cost of raw materials have gone up, adding to the firm’s debt burden.

Soma was helped through the delays by its banks, which restructured some of its debt in 2013, giving it a two-year break from principal and interest payments.

India’s banks have been hit hard by companies like Soma. Bank lending to infrastructure companies rose 36% a year over the past decade, well above overall credit growth of 22%, according to PHD Chamber of Commerce & Industry, a trade association, and Crisil Ltd., a ratings and research agency.

In 2014, bank credit to infrastructure was 14% of overall credit, and now infrastructure companies account for among the biggest portions of the bad and stressed loans on the books of Indian banks.

The bad debt has made banks less willing to lend, weighing on the overall economy, according to a Finance Ministry report in December. “The ripples from the corporate sector have extended to the banking sector where restructured assets are estimated at about 11-12% of total assets,” the report said. “Displaying risk aversion, the banking sector is increasingly unable and unwilling to lend.”

disha wrote:

ShauryaT wrote:So comes down to cement and steel as the best indicators for infrastructure growth.

Can Energy output also be seen as indicator for infrastructure growth as well. Currently it is measured by its proxy of coal output., but the energy mix is largely Coal, Hydro and Nuclear - and hence instead of coal., energy growth should be seen as an infratructure growth as well (large consumers of energy are cement/steel. Note that coal is also an important raw element for steel).

ShauryaT wrote: Is Land Acquisition the prime reason for stalling of Projects? Data obtained using RTI says ‘No’

According to the data provided by the Ministry of Finance in reply to an RTI application, only 8% of all the stalled projects are because of Land Acquisition reasons. The reasons for 1/3rd of the stalled projects is not known. And only 11 of the projects stalled because of Land Acquisition reasons involve projects for the poor and disadvantaged.