NEW DELHI: The value of new investment projects announced fell a sharp 29% on year to Rs 11.3 trillion in the March quarter, extending a declining trend of the previous two quarters, casting serious doubts about the government’s claim that, “with an uptick in private investments and inflation trending down, economic outlook for the new fiscal looks positive.”
In the just-concluded quarter, both private and government investment announcements declined roughly at the same rate (of around 30% each), data from the Centre for Monitoring of Indian Economy showed (see chart). To be sure, in absolute terms, value of private projects unveiled (Rs 9.8 trillion) in Q4FY24 was still the highest since the year-ago quarter, when it saw a recent peak of $13.8 trillion. However, typically, March quarter sees a spurt in declaration of investment intents.
Part reason for the slower-than-expected quantum of new project announcements at a time when several sectors are witnessing high capacity utilisation levels could be a guarded approach of companies in the run up to the elections. However, a worrying aspect is that investment projects dropped (abandoned, shelved or stalled) gallopped 37 times to Rs 1.71 trillion in January-March this year, the highest since March 2019, betraying the weakness of the new capex cycle.
The share of the private sector in the new projects slipped to 86.5% in Q4FY24 after touching an all-time high of 91.2% in the quarter ended December last year.
To be precise, private sector’s new projects announced fell 29% to Rs 9.8 trillion in Q4FY24, and that of the government sector fell 30% to Rs 1.5 trillion. New projects announced by the government have contracted year-on-year for five consecutive quarters since March last year. And that of the private sector contracted for three quarters in a row.
More or less reflecting this, gross fixed capital formation slowed down to 32.4% of GDP in Q3FY24 as compared with 31.8% in Q3FY23. The government’s final consumption expenditure contracted 3.2% in Q3FY24 as compared with 7.1% in Q3FY23. As a share of GDP, it dropped to 7.8% in Q3FY24 vis-a-vis 8.7% in Q3FY23.
New projects announced had touched an all-time high of Rs 16 trillion in the three months to March last year on the back of robust private sector projects of Rs 13.8 trillion. Subsequently, in the three months to June, project announcements more than halved to Rs 7.5 trillion and these fell further to Rs 3.1 trillion in the quarter ending September last year. It rose to Rs 5.2 trillion in the three months to December last year.
A recent report by HSBC underlines that while the government is raising capex meaningfully, state-owned companies are cutting back, leaving the overall public investment ratio below pre-pandemic levels. It is private investment that has risen, led by ‘dwellings & structures’, which bodes well with the rise in house sales and housing loan growth, the report says. “The other important component of investment – ‘machinery & equipment’ – remains weak, and it would be premature to call the start of a new investment cycle, at least at this point.”
As a silver lining, projects completed in the quarter ending March this year rose 38% on year to Rs 3 trillion as compared with Rs 2.2 trillion in the same quarter last year.
Source: The Financial Express