India Inc fresh investments in projects rose 2.93% to Rs 5.96 trillion in the first quarter of FY24 compared with Rs 5.79 trillion recorded during the same period of the previous fiscal, according to a report by Bank of Baroda.
With investment still to pick up in a broad-based manner, in the short to medium-term, the heavy lifting on investments still has to be done by the government.
The rise in investments was led by the transport sector, which contributed nearly 74% to the overall investments, and airlines contributing the most within the segment. The transport sector’s share was “really high” while the power sector followed with 10% and by chemicals (8%), machinery (3%) and auto (2%).
The study, which used Centre for Monitoring Indian Economy’s data, said this was a ‘U’-shaped recovery (compared with the same quarters from FY15).
“This was encouraging as these investments had declined in 2019 and 2020. The revival witnessed in 2021 continued in 2022 and 2023, though admittedly the level is still lower than what it was in 2016 and 2017,” it added.
The announcements in Q1 of FY24 were not broad-based and restricted to a handful of sectors. The picture for the reporting quarter was “mixed”, it said.
The airline industry dominated the landscape for a considerably long period of time with a share of between 20-30% in the past 10 years. Now, investments in this industry are unique so far as it involves purchase of airplanes, which are imported.
Hence, while it does add to the capital stock of the country, it would not be generating backward linkages with other sectors, hence, other related industries may not benefit much from such purchases.
“The boost is more for the global manufacturers of these aircraft,” it said. The investment still has to pick up in a broad-based manner.
Indian corporates raised Rs 2.33 trillion from bond markets in Q1, compared with Rs 97,004 crore they raised during the same period a year ago. Almost 89% of the funds were mobilised from the financial sector, of which asset financing companies accounted for 72%.
Hence, there were limited funds raised by non-finance companies. Construction and electricity had shares of 4.1% and 2.4%, respectively, followed by the diversified group of companies with 2.3%. Therefore, from the debt market’s point of view, the investment story looks “blurred”, it added.
Data on bank credits for the first two months of the quarter suggests that growth in credit was higher at 15.4, compared with 12.2% in FY23. The sectors that drove this growth were agriculture, services and personal loans. Industry lagged with growth of 6% as against 8.8% last year.
“There are fewer signs of credit being used by the industry for investment purposes and it does appear that most of the loans are for working capital purposes,” it said.