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Business News/ News / India/  Fresh investments decline in India, worst yet to come
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Fresh investments decline in India, worst yet to come

Reversing the temporary bump in investments in the previous quarter, fresh capex announcements in the March-ended quarter crawled back to year-ago levels, CMIE data shows

Photo: iStockPremium
Photo: iStock

After a bump in new projects announced by Indian companies last quarter, fresh investments declined in the March-ended quarter, latest data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows. The worst may be yet to come as Indian businesses deal with the twin shocks of a health crisis and a global recession.

Together, both private and public sector companies announced new projects worth Rs. 2.9 trillion in the March quarter, a 2 percent decline compared to a year-ago period, and a 41 percent decrease compared with the quarter ended December 2019.

Private sector capex announcements fell by 57 percent from last quarter to Rs. 1.6 trillion while public sector capex rose by 18 percent over the same period. Compared to a year ago, public sector projects witnessed a 4 percent fall. These numbers are provisional, and may be revised later.

The June quarter numbers are likely to look even more grim. Already, the spread of covid-19 has forced severe lockdowns in several parts of the world, including India. Real time data suggests that even services deemed ‘essential’ by the government in India have been hit hard by the ongoing lockdown. Other sectors have likely faced a bigger hit. Most economists have downgraded growth estimates for India and the world over the past few weeks. And more may be in store.

How the Indian economy shapes up in the coming months will depend a lot on the trajectory of covid-19 cases in the country. At the moment, India’s trajectory is flatter than many Western economies but steeper than several Asian peers.

Even if India escapes the worst of the health crisis, it will still have to deal with the after-effects of a prolonged lockdown which came when the economy was already reeling from a giant financial shock. Now, as the world stares at a recession, we can expect Indian promoters to be even more wary of taking up new projects. Rising bond yields and sinking stock prices give a foretaste of things to come.

Exclusion of outlier mega-projects from the latest capex data suggests that the investment sentiment may already have been weaker than what the headline figures suggest. Without these mega-projects, private sector announcements would have halved to Rs. 0.8 trillion, a 4% fall from last quarter, and a 52% drop compared to the year-ago period.

The construction and services sectors have been the worst-hit in the March ended quarter, with fresh project announcements declining 80% in both sectors compared to the previous quarter The power sector is the only one to have seen an uptick, broadly anchored by the Greenko group’s renewable investments in Rajasthan and Gujarat.

Stalled projects remain a persistent issue despite fresh capex announcements. In the March-ended quarter, the value of stalled projects reached Rs. 13.9 trillion, the highest since CMIE started compiling data in 1995.

Private sector stalling rate decreased marginally to 27.4% while that of government projects rose more than half a percentage point to 4.5%. The stalling rate is calculated as a percentage of total projects under implementation so that the values are comparable across time.

Within sectors, the manufacturing and power sectors are most affected with stalling rates of 22% and 20%, respectively. Taken together, these sectors account for about 60% of all projects stalled.


For stalled projects, lack of funds continues to be the main problem with 16% of projects amounting Rs. 2.2 trillion, put to a halt due to unavailability of credit.


Disrupted supply chains, restricted trade, cut in growth forecasts all point to a weak investment outlook for the next quarter.

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Published: 01 Apr 2020, 02:30 PM IST
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