Investments on hold: Number of new projects halved over last one year

The number of new projects on the anvil has fallen over 50 per cent in the September quarter when compared to the same quarter last year. There were new projects worth Rs 2.31 trillion in September 2018, but this number fell to Rs 0.96 trillion in September this year, showed the data from project-tracker Centre for Monitoring Indian Economy (CMIE). The value of completed projects also fell. It was down 45.2 per cent to Rs 0.57 trillion in September 2019.

Companies launch new projects when their existing capacity for production is likely to be breached. Around a quarter of the existing capacity is still lying unutilised, according to the Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey (Obicus) report released in August. This survey has been released with a lag — the latest data is for the March 2019 quarter.

“At the aggregate level, CU (capacity utilisation) rose by 0.2 percentage points to 76.1 per cent in Q4:2018-19, co-moving with de-trended manufacturing output in the index of industrial production (IIP). Seasonally adjusted CU, however, declined by 1.1 percentage points to 74.5 per cent in Q4:2018-19,” said the report. 

Order books showed an increase over the same period last year, but sales showed a decline. The drop in new projects comes at a time when the country’s economic activity has slowed to its slowest since 2013, with the gross domestic product (GDP) growth rate slowing to 5 per cent in the June quarter. Motilal Oswal Financial Services using its proprietary indicators suggested that investment activity declined in August 2019 for the third month in a row, the worst in a decade.

“What’s worse, the decline in investments was broad-based, with almost all major indicators contracting in August 2019. Cargo traffic posted its worst decline in 94 months, power production posted its first decline in six-and-a-half years, construction activity declined for the second time in three months, and capital goods’ imports declined at the fastest pace in 40 months,” said its October 1 Ecoscope report, authored by research analysts Nikhil Gupta and Yaswi Agarwal.

An earlier report from brokerage firm Jefferies India had noted that the government may have limited room to boost investments through spending money. Challenges to growth remain, which would be difficult to address, according to the August 30 Equity Strategy report by equity analysts Somshankar Sinha, Piyush Nahar, and Pratik Chaudhuri.

“Indeed, lack of fiscal space may prove to be a challenge for any meaningful stimulus. Net tax collections rose just 6 per cent (in the June quarter)…. and could weigh on expenditure plans too, (especially) capex,” said the report about the room to spend if the government is to meet its fiscal deficit target of 3.34 per cent.

The government has since announced a cut in corporation tax rates to boost investments.