Tuesday, August 4, 2015

India excess capacity facts of the day

I have blogged earlier about India's excess capacity problem and called it an investment demand constrained situation. From Livemint, about capacity over-hang in hotels market,
More than 100 planned hotel projects in India are in limbo, some stuck for as long as five years, as the sector suffers from overcapacity in an economic slowdown... According to JLL India data, around 30 projects planned by Hyatt Hotels are on hold, while 18 Marriott projects have failed to take off. Accor Hotels... has 17 stalled projects. Starwood... has 5 projects stuck... Hotel occupancy in India has steadily declined from about 75% in the last decade to about 60% between 2011 and 2014.
From a just released Knight Frank report on the weak demand in India's real estate sector,
Over 7 lakh housing units remain unsold in eight major cities and it will take more than three years to exhaust the inventories... Mumbai Metropolitan Region (MMR) has the maximum unsold inventories at 1.95 lakh units followed by Delhi-NCR 1.9 lakh homes as on June... Housing sales dropped by 19 per cent to 1,10,300 and new launches by 40 per cent to 95400 during January-June 2015 in eight cities compared with 1.6 lakh units the year-ago period. These cities are Delhi-NCR, Mumbai, Bengaluru, Pune, Kolkata, Chennai, Hyderabad and Ahmedabad.
And from the automobiles market, 
According to Siam data, Indian auto makers sold 3.22 million passenger vehicles in 2014-15 in the domestic and export markets, out of their annual capacity of 4.96 million, which is 65% of their overall capacity. However, this percentage worsens if one takes out Maruti Suzuki India Ltd, Hyundai Motor India Ltd and Honda Cars India Ltd, all of which utilize at least 80% of their capacity... Despite the low utilization, there is massive capacity expansion under way at Maruti, Honda and Mahindra and Mahindra Ltd. Once that happens in the next two-three years (see chart), the total installed capacity will reach 6.9 million units: a situation worrying enough for Kirloskar... According to forecasts from leading consultants... the Indian passenger vehicle market will see 4.44-5.3 million sales annually by 2020. That still leaves around two million in excess capacity, which the auto makers will look to utilize via exports. But experts believe that will be a mammoth task.
For an economy at the cusp of taking-off into the middle-income trajectory, this is a matter of serious concern. Given that production has been stagnant across sectors, one wonders how much the "missing middle class" contributes to the weakness in demand. 

No comments: