Mumbai: Finance Minister Arun Jaitley on June 18, 2018, through a series of tweets, said the Indian economy is moving steadily ahead with structural reforms like demonetisation, implementation of goods and services tax and enforcement of Insolvency and Bankruptcy & empowering every citizen.

We analysed four claims made by the finance minister on growth and jobs in construction sector, rise in foreign & domestic investments and Insolvency and Bankruptcy Code (IBC) helping solve the non-performing assets (NPAs) issue.

While two of the four claims made on investments and IBC were true, two on construction are partially true.

Claim: An analysis of data clearly shows that the construction sector is expanding by double digits.

Fact: partially true. The construction sector has seen double digit rise only in the January-March quarter of 2017-18 over last year but in terms of gross value added (GVA), it is estimated to have grown at only 5.7% in 2017-18 over the previous year.

The construction sector -- which includes buildings, dams, roads, bridges--reported 11.5% growth in the fourth quarter (Q4) of 2017-18 based on 2011-12 constant prices, according to Central Statistics Office data released on May 31, 2018. All the three earlier quarters saw single digit growth, data show.

The GVA of the construction sector (at constant prices) increased 5.7% in 2017-18 over its previous year as against 1.3% growth in 2016-17, Central Statistics Office data show.

The share of the construction sector in India’s GVA declined from 9.4% in 2011-12 to 7.4% in 2017-18 according to a joint report by Assocham, a trade association and ICRA, a ratings agency, The Economic Times reported on June 12, 2018.

“Weakness in aggregate capex (capital expenditure) together with subdued real estate demand has resulted in decline in the share of construction sector in India's gross value added,” the report said.

Claim: It [Construction] is a job-creating sector.

Fact: partially true. The sector reported 35,000 jobs losses between April 2016 and September 2017, according to the latest data available.

Of the 34 sectors identified by the government to train people under the Skill India programme, the construction sector requires the most (32 million) people to be trained between 2017 and 2022, according to the Ministry of Skill Development and Entrepreneurship annual report 2016-17.

Construction Sector Employment In India, April 2016 to October 2017
Sector Level Estimates as on 1 April, 2016 Change Estimates (1 July,2016 over 1 April,2016) Change Estimates (1 Oct, over 2016, 1 July,2016) Change Estimates (1 Jan,2017 over 1 Oct,2016 ) Change Estimates(1s t Apr’17 over 1st Jan’17) Change Estimates (1st Jul’17 over 1st Apr’17) Change Estimates (1st Oct’ 17 over 1st Jul’17)
Construction 367000 -23000 -1000 -1000 2000 10000 -22000

Source: Lok Sabha

The eighth survey report -- for the October-December 2017 quarter -- which was due in May 2018 has been put on hold, The Economic Times reported on June 7, 2018.

So, it remains unclear if jobs were added or lost in the third and fourth quarter of 2017-18.

On the contrary, employment in the construction sector has seen steady growth, 9.8% in 2011-12 and 8.2% four years later in 2015-16, according to data released in March 2018 by the India KLEMS database, a research project supported by the Reserve Bank of India.

The construction industry’s average employment growth rate for the past five years is 9% – the highest amongst sectors that are traditionally large employers - often absorbing former agricultural workers, IndiaSpend reported on March 30, 2018.

The sector’s total factor productivity – a measure of efficiency – has been declining each year, the KLEMS database show.

Claim: Investment is increasing. Domestic investment is also increasing. The FDI is at an unprecedented level.

Fact: True. Both foreign direct investments (FDI) and domestic investments have increased. However, the FDI increase is not true when considered as a proportion of gross domestic product (GDP).

FDI increased by 67% from $36 billion in 2013-14 to $60 billion in 2016-17, data from the department of industrial policy and promotion, a division of the commerce ministry, show.

FDI as a percentage of GDP–an indicator used to measure the strength of an economy–is down to 2% in 2016 from 2.1% in 2015, according to World Bank data, FactChecker reported on June 4, 2018. It was the highest at 3.6% in 2008.

“One needs to remember that the $60 billion number comes from equity (fresh foreign investments) and reinvestments from local companies, and the percentage of equity is lower this time, Madan Sabnavis, chief economist at CARE Ratings, a credit rating agency, had told FactChecker. “FDI and other foreign investments are important since India depends on them for funding the current account deficit.”

The improvement in ease of doing business ranks for India and the reforms have played a role in attracting FDI to the country, Sabnavis had said.

Domestic investments increased in 2017-18

The gross fixed capital formation (GFCF), used as a measure of domestic investments including purchases of plant, machinery, and equipment, at constant prices increased 8% from Rs 37.98 lakh crore in 2016-17 to Rs 40.88 lakh crore in 2017-18, Central Statistics Office data released on May 31, 2018 show.

The capital expenditure is expected to increase 30% from $46 billion (Rs 3 lakh crore) in 2017-18 to $61 billion (Rs 3.9 lakh crore) in 2019-20, India Brand Equity Foundation, a trust under the ministry of commerce and industry, reported in April 2018.

Claim: The IBC is unlocking the value in the NPAs.

Fact: True. Insolvency and Bankruptcy Code (IBC) is helping solve the non-performing assets (NPAs) mess but banks face high charges on legal proceedings in the courts.

As many as 701 corporates are going through the insolvency resolution process, according to the March 2018 report by the Insolvency and Bankruptcy Board of India.

While 22 cases resulted in resolution, 67 were closed on appeal or review and 87 companies were liquidated, the report said.

With more companies undergoing the insolvency process and rise in referrals to the National Company Law Tribunals, the process of admission of cases and resolution is expected to slow down, The Indian Express reported on June 21, 2018.

Corporate Insolvency Resolution Process
Time Period Corporates undergoing Resolution at the beginning of the Quarter Admitted Closure by Corporates undergoing Resolution at the end of the Quarter
Appeal/Review Approval of Resolution Plan Commencement of Liquidation
Jan-Mar, 2017 0 37 1 36
Apr-Jun, 2017 36 128 8 156
July-Sept, 2017 156 228 13 2 8 361
Oct-Dec, 2017 361 141 33 8 24 437
Jan-Mar, 2018 437 167 12 12 55 525
Total NA 701 67 22 87 525

Source: Insolvency and Bankruptcy Board of India

The Insolvency and Bankruptcy Code, 2016 (IBC) was passed in May 2016.

The progress in corporate insolvency resolution process (CIRP) has been "amazing", M S Sahoo, chairman, Insolvency & Bankruptcy Board of India, told The Times of India in an interview on June 12, 2018.

“About 850 firms, including 12 big accounts identified by the RBI, have been admitted to CIRP. Of them, about 75 have been closed on appeal or review. About 140 have matured after ending up with orders for either resolution or liquidation. About 200 companies are undergoing voluntary liquidation. Work on individual insolvency framework has started,” Sahoo said.

In 2017, the Reserve Bank of India identified 12 companies, which accounted for 25% of NPAs, for immediate bankruptcy proceedings

The NPAs of two companies -- Bhushan Steel and Electrosteel Steel -- were successfully resolved under the IBC, Financial Express reported on June 4, 2018.

Alok Industries, with an outstanding loan of over Rs, 23,000 crore, is nearing final stage of resolution with Reliance Industries likely to take over the debt-ridden company, Financial Express reported on June 22, 2018.

The legal proceedings of the 12 companies shortlisted by RBI have cost the banks Rs 25,000 crore, Business Today reported on June 18, 2018.

The 12 cases referred by RBI will get either resolved or go into liquidation, Bahram Vakil, co-founder of law firm AZB & Partners and one of the architects of the IBC, told Mint in an interview on June 12, 2018.

“The majority of the second lot of about 25 cases should also get decided by year-end,” Vakil said.

“Together, these cases constitute over 40% of the total number of NPAs, so if we achieve success in these cases, that would be a terrific achievement.”

(Mallapur is an analyst with IndiaSpend and FactChecker.)

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