New Delhi: Announcements of new projects — a measure of investment intended by companies in India — were at their the lowest in this financial year as compared to the last six years, excluding the COVID lockdown-impacted 2020-21, a new analysis has found.
Bank of Baroda’s economic research wing Tuesday released a report analysing data from the Centre for Monitoring Indian Economy (CMIE) on the value of new project announcements in the April-to-December period.
According to the data, not only is investment sentiment low, but the investment that has been announced is concentrated in just a few sectors, and those, too, are largely to do with acquisitions of assets rather than the creation of new ones.
Further, while the overall value of new project announcements has fallen sharply, the fall seems to be somewhat sharper for government-owned companies than private sector ones, although the difference is marginal.
The reasons behind this sluggish investment sentiment, the report said, could be excess current capacity in various sectors, the uncertainty brought on by upcoming general elections, and high interest rates at the moment, with companies expecting rate cuts next year.
Low, concentrated investments
The data shows that new projects worth Rs 10.8 lakh crore were announced in April-December 2023, less than half of the Rs 21.89 lakh crore of investments announced in the same period previous year.
In fact, the value of investments announced in 2023-24 so far is lower than what has been announced in the April-December periods of the last six financial years since 2018-19, except for in 2020-21, when it had fallen to Rs 5.94 lakh crore due to the lockdown.
“At Rs 10.80 lakh crore for the first three quarters, investment announcements are at the lowest if 2020 is excluded, which was during the lockdown,” the report said. “Hence, there is definitely a case of investment still being low and not picking up at the desired rate.”
The report added that almost 49 percent of investment intentions in the current financial year were in the services sector, of which transport services contributed to 94 percent. This, it said, was mainly due to the aviation sector and the large orders for new aircraft placed by some companies in this year.
In June this year, IndiGo placed an order for 500 Airbus aircraft, just months after Air India placed an order for 470 new planes.
“Within manufacturing, which has a share of 28 percent (of new project announcements), chemicals and machinery have larger shares of 42 percent and 19 percent respectively,” the report said. “The power sector continues to be a driver with a share of 21 percent.”
“Hence, clearly the intentions are biased towards four sectors,” it added.
Both government & private sector sluggish
The CMIE data also shows while government-owned companies made 23 percent of the Rs 21.89 lakh crore of new announcements in April-December 2022, this share fell marginally to 21 percent in the same period of the current financial year.
In other words, the private sector’s share in new project announcements grew to 79 percent in 2023 from 77 percent in the previous year. It is important to note that investment announcements by both the public and the private sector fell by about half in 2023 compared to the previous year.
“One factor holding back investment could be excess capacity in several sectors,” the report said. “RBI data (on capacity utilisation) for June shows the average at 73.6 percent.”
“The other is uncertainty due to the elections next year as there is a tendency for companies to wait and watch before investing,” it added. “The third factor could be high interest rates and the expectation of repo rate cuts next year in the second quarter of the fiscal.”
(Edited by Tikli Basu)
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