Home >News >India >New investments in India plunge to 16-year low

New project announcements in India plunged to a 16-year low in the just-ended June quarter, latest data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE) shows. As the country remained under lockdown for most of this period to combat covid-19, economic activity dropped sharply. Animal spirits of India’s entrepreneurs also seems to have dried up, the latest data suggests.

Private investments in India have been anaemic for a while, and the decline in economic activity seems to have dampened sentiments further. Government-led investment projects, which had seen their share rise over the past few years, also collapsed in the latest quarter. The drop was particularly sharp for state governments, which have been finding it hard to finance even routine expenditures.

State governments announced new investments worth a mere Rs. 937 crores, the lowest level on record since CMIE started compiling the data in 1995. Investments by state governments have been a key driver of public sector investments but in the June-ended quarter, they accounted for only 4 percent of the value of total government projects announced.

Together, public and private sector companies announced new projects worth Rs. 56,087 crores in the quarter ending June 2020, levels last recorded in June 2004. The value of new projects is half of what it was in the year-ago period, and 83 percent lower compared to the March-ended quarter. These numbers are provisional and may be revised later.

New foreign investment plans have also dried up as the pandemic worsens the global trade and investment climate. Compared to the March-ended quarter, foreign private capex declined by 95 percent, and compared to the year-ago period, by 70 percent.

The fall in capex was less sharp for the domestic private corporate sector and the central government, with capex plans declining roughly 25 percent for both, compared to the year-ago period.

However, the mix of investments is skewed towards a few mega projects. Two energy sector projects, one private (Veeraballi Pumped Storage Power Project) and one by the central government (West Bengal & Jharkhand Floating Solar Power Project) constitute a major share of the new capex announced in the June-ended quarter.

All sectors saw a drop in project announcements, the data shows. Compared to year-ago levels, the decline was steepest for construction sector projects, down by 93 percent, whereas electricity projects noted an uptick.

The value of stalled projects and their stalling rate rose compared to year-ago levels. But compared to the March-ended quarter, stalling rates saw a sharp decline. 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. Unavailability of raw materials was another key factor. 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.

With the country emerging from the lockdown amid a slight recovery in economic activity, it is likely that capex plans will recover from the current lows in the coming months. But unless the pandemic is brought under control, investor sentiment is likely to remain weak. Many firms are struggling to meet current expenses, and have little appetite for fresh investments. Others are likely to conserve cash rather than make new investments till they see signs of a sustained revival in demand.

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