Animal spirits of Indian industry yet to revive, fresh data show

The silver lining is that the latest numbers mark a sequential improvement compared to the December quarter. Public and private firms cumulatively announced new projects worth ₹1.2 trillion in the just-ended quarter, 13% higher than in the quarter ended December 2020.

The rise in new announcements in the latest quarter were led by the public sector, with private sector announcements remaining largely unchanged compared to the December-ended quarter. State government projects saw a faster rise compared to central government projects, albeit from a lower base.

The low appetite for investments among private firms signals continuing uncertainty about the medium-term economic outlook. India’s investment cycle has been weak for several years now. But even by those low standards, the pandemic was a body blow for capex plans. It is likely that many companies will prefer to wait for greater visibility on demand recovery before raising investments significantly.

The public sector, which was expected to fill in the void created by the absence of private investments has also been struggling. Although public sector investments saw a sequential improvement, they still remain far below pre-pandemic levels. Besides, only a few projects accounted for the bulk of the public sector projects. The Solar Energy Power Corp’s Grid-Connected Solar PV Power Project in Rajasthan accounted for nearly 63% of the new central government’s projects. Ahmedabad Urban Development Authority’s Sports Enclave project alone accounts for nearly 44% of the fresh projects announced by the state governments.

Overall, most new projects were in the manufacturing sector in the March-ended quarter. Services capex also saw an uptick. Other sectors saw sharp declines in capex announcements compared to the year-ago period.

Project stalling rates for government projects have continued to decline but private sector stalling rates still remain at an uncomfortably high level, the latest numbers show.

Lack of funds continues to be the biggest known reason for stalling the projects. Other factors’ were otherwise the major reason for stalled projects. Covid-19 disruptions might have contributed to this. This category essentially takes into account unanticipated disruptions and natural calamities.

Recent reforms by the government and its moves to open up large monopolies in sectors such as gas distribution, power distribution, coal mining, railways could invite higher private capex in the coming years, a 15 March BofA Global Research report said. The capex revival in the country would be initially led by government infrastructure projects before it spreads to other sectors, the report said. However this process could take a few years to unfold.

There doesn’t seem to be a quick end in sight for India’s investment woes.