Investments in new projects fall to Rs 1.15 lakh crore, but RBI survey sees them picking up
Capital formation in the country has hit the lowest this fiscal in December, but there are signs that the situation is improving.
Investment in new projects as well as the revival of stalled projects in the current fiscal was lowest in December, according to data released by Centre for Monitoring Indian Economy (CMIE) on Thursday.
Falling every month this fiscal, investments in new projects have dropped sharply to Rs 1.15 lakh crore in December from Rs 4.20 lakh crore at the beginning of March, it said.
In a similar trend, capital expenditures in completed projects have come down from Rs 1.66 lakh crore to Rs 83,000 crore while implementation of stalled projects slipped from Rs 2.07 lakh crore to Rs 29,000 crore during the period, as per the CMIE data.
While quarterly project investments might not give an accurate idea of the overall investment climate, it’s now a secular trend downhill that began in June 2015, say economists.
“Investments are generally low prior to general elections because of policy uncertainties. The industry is also bogged down by global volatility, especially the US-China trade war, European political climate and commodity price volatility. Domestically, raising money has been increasingly difficult and activity in the capital markets has remained subdued. Also, capacity utilisation levels still suggest that there remains some residual capacity in the industry,” Karan Mehrishi, chief economist, Acuité Ratings & Research, told DNA Money.
“Nonetheless, credit offtake has been strong, albeit under a fairly tight liquidity scenario. All in all, we believe that industry players are in a wait and watch mode for now. Fundamentals of the economy remain healthy and the capex momentum will start to build up post second quarter of FY20,” Mehrishi said.
Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey, or OBICUS, data has shown capacity utilisation levels have fallen to 73.8% in the June quarter from around 75.2% in the March quarter.
The third quarter survey is yet to be compiled.
RBI’s OBICUS survey offers insight into the demand conditions faced by the Indian manufacturing sector by presenting movements in actual data in order books, inventory levels of raw materials and finished goods and capacity utilisation.
Poor demand scenario impacted capacity utilisation as well as private sector firms’ decision to invest in new projects.
However, Reserve Bank of India’s survey of professional forecasters is hopeful of a rebound.
“Investment rate, proxied by the ratio of gross fixed capital formation to GDP, is expected to improve in FY19-20, commensurate with an upturn in the saving rate,” RBI’s Survey of Professional Forecasters published in December said.
The survey expects the real gross value added to grow by 7.2% in FY19 and by 7.3 % in FY20, supported by activity in the industrial and services sectors.
RBI’s Survey of Professional Forecasters, being done since 2007, reflects the view of 26 panelists who participated in the survey conducted during November.
“Even though saving as a percent of GDP is lower than its historic average, primarily due to the evolving state of the economwy, the component may see wa minor spurt in the near term. This is because we see cash emerging as a safe asset as compared to other classes in volatile times with corporate savings playing an important role here. The money may be channeled toward public asset creation. This also means that public expenditure will remain in the driver’s seat for now. Acuité expects private sector capital expenditure to pick up only in a gradual manner from H2 of FY20,” Mehrishi said.
“Our pan-India channel checks indicate cement demand increased during October-December period over the previous quarter, driven by good traction across infrastructure and low cost housing projects,” Rajesh Kumar Ravi and Vinay Menon of Centrum Research said in a research note.
BREAKOUT ZONE
- 73.8% – Capacity utilisation in December 2018, from 75.2% in March
- 7.2% – RBI survey expects real gross value add to rise in FY19
- 7.3% – Real gross value add likely to rise in FY20, aided by industrial and services sectors
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