Weakening Economy: Steep fall in new projects; RBI reveals consumption, expenditure worries

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Published: July 12, 2019 6:43:50 PM

New projects such as petrochemical complexes, solar plants, roads, etc have taken a sharp dip in the first quarter of the current financial year. The value of new projects in Q1 FY20 fell to just Rs 47,000 crore from Rs 2.36 lakh crore a quarter ago in Q4 FY19.

New projects, Completed projects, Infrastructure, Industry, PFCE, GFCF, Economy, GDP, Consumption, ExpenditureThe reason behind the sudden drop of 80 per cent in new projects can be attributed to the slump in both private and government investments.

New projects such as petrochemical complexes, solar plants, roads, etc have taken a sharp dip in the first quarter of the current financial year. The value of new projects in Q1 FY20 fell to just Rs 47,000 crore from Rs 2.36 lakh crore a quarter ago in Q4 FY19, according to the Centre for Monitoring Indian Economy (CMIE). Value of projects which have been completed in Q1 FY20 also shrunk by over three-quarters, compared with the previous quarter. Projects worth Rs 2.34 lakh crore were completed in Q4 FY19, whereas projects worth only Rs 54,000 crore could be completed in the first quarter of FY20. Investment in new projects is near a 15-year low.

The reason behind the sudden drop of 80 per cent in new projects can be attributed to the slump in both private and government investments. The main drivers of GDP, investment and consumption, both have turned weak in the recent past. Gross fixed capital formation (GFCF) and private final consumption expenditure (PFCE) have displayed a lower growth rate of 3.6 per cent and 7.3 per cent respectively at constant prices in Q4 FY19, according to the RBI’s Financial Stability Report. This coupled with the subdued new investment pipeline and a widening current account deficit have been putting pressure on the fiscal front.

New projects are the gateway to infrastructure and industrial growth of the country and a rapid downfall can pull down the economy further. Economic expansion crashed to a five-year low of 5.8% in the fourth quarter of FY19. Last month, the Finance secretary Subhash Chandra Garg blamed temporary factors, including the NBFC crisis and high-interest rates, for the current slowdown and added the MPC will take note of all these indicators. He expressed confidence that the economic expansion will pick up the pace from the next quarter, as liquidity is improving and credit offtake picking up pace. However, the lack of investments in the field of infrastructure and industry still reflect the lack of confidence and instability in the market.

The sharp decrease could also be partly a result of the uncertainty induced by the general elections and the transition to a new regime. However, the 2014 elections quarter saw an increase in investment.

 

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