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Investment climate subdued on slower capital expenditure plans: Study

The private sector and households capital formation accounts for nearly 75% of the gross fixed capital formation of the country

Jayajit Dash  |  Bhubaneswar 

Image via Shutterstock
Image via Shutterstock

The country's climate during April-December period of this fiscal looks subdued with declining figures in announcements of new projects and the number of projects under execution.

According to data by the (CMIE), the value of in new projects during April-December was Rs 4.43 trillion, less than half of Rs 9.21 trillion in the comparable period of last fiscal. Moreover, the value of projects completed at Rs 2.83 trillion was down by 35.3 per cent from Rs 4.38 trillion in the year ago period.

The valuation of in the period under review was 23 per cent higher at Rs 10.17 trillion compared with Rs 8.29 trillion.

Credit growth in manufacturing sector was subdued till December. "The other sectors which could be linked with performed better like services and mortgages (within retail loans). There is however, no clear indication of such lending going for purposes", a report by CARE Ratings stated.

The picture till December 2017 does not indicate any significant pick up in the rate in the economy. Central Statistical Organisation's (CSO) estimate of declining capital formation is expected to remain for some time.

As per the estimates by CARE Ratings, lower level of intents as well announcement of new projects implies that India Inc is yet to consider capital expansion plans this year. The trend could be reversed only after a couple of quarters.

Gross fixed capital formation as percentage of GDP for the economy has been coming down over the years and as per CSO's first advance estimate for FY18 is expected to decline further to 26.4 per cent.

In FY16, it was 29.3 per cent. The ratio was as high as 34.3 per cent in

FY12. Quite clearly the level of has been moving down due to a combination of low capacity utilization rates and demand conditions. Besides private sector in infrastructure has lagged with the banking system also being under pressure in financing Capex projects of companies.

The private sector and households capital formation accounts for nearly 75 per cent of the Gross fixed capital formation of the country.

Production of capital goods presented a slightly different picture during April-December. Overall production has increased by 3.8 per cent compared to 3.4 per cent last year. However, segments which account for nearly 50 per cent of the capital goods (based on weight) have witnessed contraction in growth during 2017-18.

First Published: Wed, February 21 2018. 18:42 IST