The value of new investment projects announced fell a sharp 92% on year to Rs 59,900 crore in the June quarter, extending a declining trend of the previous three quarters, casting serious doubts the strength and durability the new private capex cycle.
The lowest value since September 2009, when the Centre for Monitoring of Indian Economy (CMIE) started collecting data on capex plans of the government and the private sector, is partly owing to the deferment of decisions amid the election period. But the general feebleness of the investment cycle is unmistakeable, given the contraction phase for private-sector project announcements since the second quarter of last fiscal.
In the just-concluded quarter, the growth in the private and government investment announcements declined 94% and 84%, respectively. In value terms, June quarter reported reported the lowest level of project announcements by both private and the government since September 2009.
Private sector’s share in such new projects plunged to just 66.7% in June quarter, down from 85.4% in March quarter and 90.9% in the previous three-month period. This would also appear to be one of the lowest level over many years, excluding the disruptive pandemic period.
The growth in the private sector’s declaration of investment intents contracted for four quarters in a row to Rs 35, 600 crore and that of the government contracted for six quarters in a row to Rs 24,700 crore in the quarter ended June this year.
The tepid trend in project announcements, curiously, is despite the fact that the RBU survey found that at the aggregate level, the capacity utilisation (CU) in the manufacturing sector increased to 74.7% in Q3FY24 from 74% in the previous quarter. The seasonally adjusted CU increased sequentially (q-o-q) by 10 basis points to 74.6%, the RBI had noted.
Corporate India has been saying that the private capex is in a positive trajectory, after having recovered to a level higher than the pre-Covid period in FY23. Industry bodies have cited that a host of factors like corporate tax cuts, the PLI scheme, the ease of doing business, stress on logistics etc. as factors favouring new capex cycle.
Anitha Rangan, economist, Equirus Securities, said the drop in capex announcement is largely due to election uncertainties witnessed this year. “Long duration elections may have led to delay in approvals, therefore delay in announcements. This trend is visible both on the government and private side,” she said, adding that post-elections, there have been more capex announcements from the private sector.
Even during the past during the election quarter new project announcements dropped. In 2019, during the June 2019 quarter it contracted 62% and in June 2014 it contracted 22%. However, the fall is much sharper in the June quarter of this year.
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. More worrying is the fact that even projects completed contracted 80% in the June quarter, the first time since December 2022.
Paras Jasrai, senior analyst, India Ratings and Research, said: “Thess are an announcement or directional data about investments. A lot of the announcements in the previous fiscal, generally come in to implementation in a year’s time. The private investment is expected to pick up somewhat in FY25, but overall investment activity would be dependent on public investments like previous years.”