The ongoing growth slowdown is taking a toll on investments, as fresh funding for projects fell to a 15 year low in the first half of FY20, a report said.
The ongoing growth slowdown is taking a toll on investments, as fresh funding for projects fell to a 15 year low in the first half of FY20, a report said. In FY19, the value of new investments was recorded to be lowest in the past five years with the number of fresh projects pegged at Rs 11.9 lakh crore, CARE Ratings said in a study based on CMIE data. It is the fourth consecutive year of such contraction, it added. Weak investment climate and consumption are the key reasons for the investments to fall over the period, the report noted. In addition, lack of funds and slow non-environment clearances have added to the problem.
Investment remains stagnant
“For the past few years, the investment rate in the country has remained stagnant and has not seen much traction,” CARE Ratings said. A consistent drop has been seen in the investment rate measured as the gross fixed capital formation (GFCF) as a percentage of GDP over the years. It has remained range bound between 28%-29% of GDP in the past 4 years, it added.
Chart: New investment
Source: CARE Ratings
Government investment falls
The share of government in fresh investments fell to 36 per cent in FY19 from 56 per cent in FY15. However, in the same period, the share of private companies increased to 64 per cent from 44 per cent. A surge of 23 per cent by the private sector has been recorded so far this fiscal, as against 23 per cent growth in the first half of FY20.
Manufacturing is the sole hope
While the manufacturing sector saw fresh investment projects come up, services and electricity saw a decline, the report said. In the last five years, stalled or abandoned projects dropped, even as such government projects surged. The Indian economy is seeing a slowdown on account of global and domestic factors. In the first quarter of FY20, the economy recorded a growth of a mere 5 per cent. The projects from different rating agencies also don’t pose a bright picture of the economy in the second quarter as well. Meanwhile, the Modi government has announced a slew of economic reforms in the last few months to revive the ailing economy.