Economy
Why India Inc’s capex plans slowed down in FY24
Summary
The year 2023-24 saw projects worth ₹27.1 trillion being announced across the country, down 31% after two years of sharp growth. But the decline was due to the high base of last year.
India’s investment climate got a boost from the high-octane summits organized by various state governments in the quarter ended March, leading to a surge in new project announcements. But this wasn't sufficient to counteract the effects of the dull mood earlier in the fiscal year.
A total of ₹11.3 trillion worth of new projects were announced across the country during the three months through March, two times the figure in the December quarter, showed provisional data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE). However, the year 2023-24 ended with ₹27.1 trillion worth of new projects being announced, down nearly 31% after two successive years of sharp growth.
The decline in 2023-24 can largely be attributed to the high base of the previous year, when Air India had announced a ₹6.6-trillion deal to buy aircraft in February 2023. This had propelled capex announcements to grow to a record ₹39 trillion by value in 2022-23.
“While there has been a fall compared with 2022-23, the number is still the highest in the last 10 years," said Madan Sabnavis, chief economist at Bank of Baroda. “The fall was discernible mainly in the transport segment (due to the airline orders). There could be further correction as the airline industry may not be making such announcements again to the same extent. But we should expect other industries to show some increases in value terms."
The figure for 2023-24 was higher than the pre-pandemic five-year average.
The largest proposal announced in the March quarter was Tata Electronics’ Dholera semiconductor fab plant worth ₹91,000 crore, followed by NTPC Green Energy’s ₹80,000-crore plan to develop green hydrogen and derivatives.
Sectoral snapshot
The dull capex mood was visible across sectors, not just transport services. The broader non-financial services sector, of which transport services is a part and which had led the charge in 2022-23 due to the aircraft orders, witnessed a fall of around 52% in the value of new proposals, followed by manufacturing (26% decline). The mining sector continued to slacken, and also turned out to be the worst-hit with a 78% decline on top of a 50% decline in the previous year. Construction and realty has also been languishing, with project announcements slumping by over 20% in each of the last two years. Electricity was the only major sector that managed to restrict its fall, with projects worth ₹9 trillion announced in 2023-24, down only 7%.
Shraddha Umarji, economist (institutional research) at Prabhudas Lilladher, said that once the elections are out of the way and corporates have clarity on policy continuity, they would start stepping up their capital expenditure plans.
Project completions
However, the value of projects completed during the year offered some respite. The CMIE’s CapEx database shows that a record ₹8.1 trillion worth of projects reached completion in the year 2023-24, an increase of 21% over the previous year. Some of the notable projects that got completed include the Sahnewal-Mughalsarai-Sonnagar Eastern Freight Corridor Project and Reliance Industries' KG-D6 Gas Development Project in Andhra Pradesh. On average, around ₹7.1 trillion worth of projects have been completed in the last three years, up from nearly ₹5.6 trillion in the five years ending 2018-19. In the pandemic year 2020-21, this had slid to ₹3.5 trillion.
In the March-ended quarter, public sector companies completed around ₹2 trillion worth of projects, compared to nearly ₹1 trillion by private ones. “This is a year-end phenomenon where companies try and expedite (completions) both to meet targets as well as to clear the backlog," said Sabnavis.
Silver lining
There was more good news: a decline in the stalling rate of projects. The project-stalling rate, calculated as the value of stalled projects as a share of the total value of projects under implementation, declined to a 13-year low of 8.2%, down from 9.2% in 2022-23. The stalling rate for private projects declined to 15.2% from 17.1%, while that for the public sector declined marginally to 3.9%, the latest data showed.
Going forward, the investment outlook seems patchy. “Private capex and private consumption are endogenous to each other," said Madhavi Arora, lead economist at Emkay Global Financial Services. “Amid still-shallow private consumption, elections (both in India and key trading partners like the US) lined up, the possibility of slower growth ahead domestically and globally, and expectation of a lower interest rates cycle in the later half of the year is still keeping private investment on a wait-and-watch mode."
