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Photo: Mint
Photo: Mint

New investments decline again in Sep quarter, dashing hopes of quick revival

Only the manufacturing sector saw a slight bump in new project announcements in the just-ended quarter

After reaching a 16-year low in the June-ended quarter, new project investments fell further in the September quarter, latest numbers from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows.

The data shows that private and public sector companies announced new projects worth 59 thousand crores in the September quarter, a 82 percent year-over-year decline, and a 15 percent decrease compared to the June-ended quarter this year. These numbers are provisional and may be revised later.

The sharp decline in new projects in the June quarter was not very surprising as the pandemic-induced lockdown was at its most stringent phase then. But the continued slide in investments in the just-ended quarter suggests that firms continue to be extremely cautious, despite lifting of lockdown restrictions and a rebound in demand. High-frequency indicators tracked by Mint’s macro tracker suggests that the Indian economy picked up pace in August

after being stuck in a limbo in the previous months. Manufacturing activity saw a further fillip in September, the latest purchasing managers’ index data for India shows.

Yet, this pick-up in demand and manufacturing activity has not been able to revive investments, the latest numbers show. Even as the supply shock of the lockdown eases, India may be heading towards a demand shock as households and firms remain cautious amid a still-raging pandemic, wrote Mint columnist Niranjan Rajadhyaksha recently.

The capex numbers suggest that firms are likely to conserve cash and withhold new investments till there is greater clarity on the sustainability of the demand recovery.

Even as private entrepreneurs have become risk-averse, cash-strapped governments have also squeezed capex, the latest numbers suggest. Compared to the last quarter, both government and private sector capex announcements fell by similar levels, 16 percent and 14 percent, respectively. The drop was the sharpest for central government-led projects, and announcements halved, from the previous quarter figure, to 12 thousand crores.

State government project announcements, which were hit hardest in the June-ended quarter, doubled in the September-ended quarter, but they are at mere 10 percent of their year-ago levels. Moreover, the rise was largely attributable to two major outliers (Bengaluru Integrated Biotech and Life Sciences Park Project and Telangana Floating Solar Power Project), accounting for 60% of announcements by state governments.

All sectors, barring manufacturing and construction, saw a decline in new projects in the just-ended quarter. Construction saw a slight pick-up, while manufacturing project announcements doubled on a low base. Yet, manufacturing investments are still 7% lower than the year-ago levels. New manufacturing project announcements were largely driven by the private sector, accounting for 79% of fresh investments in the sector. Two major projects - Orgadam Solar Cells & Modules Manufacturing Unit Project and Uttar Pradesh Electric Vehicle Manufacturing Plant Project-Phase 3 - accounted for a third of these new projects.

The rate of stalled projects declined from 7 percent to 4 percent for government-sector projects even as it rose slightly to 31 percent for private sector projects. The stalling rate is calculated as a percentage of total projects under implementation so that the values are comparable across time.

As in previous quarters, lack of funds continues to be a major reason behind stalling of projects. Covid-19 related disruptions may have contributed to the stalling rate, with many projects stalled because of ‘other reasons’. This category typically captures unanticipated disruptions and natural calamities.

The outlook on investments remains clouded because of uncertainty over the course of the pandemic and the extent of government support to boost demand. While the government has been proactive in pushing for reforms on factor markets, stimulus measures have been limited so far.

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