New projects drop 13% sequentially in June quarter due to Covid: CMIE data

Value of completed projects halved to Rs 50,000 crore; Figures are 70-95% on YoY basis because of national lockdown at the time

Companies had fewer new projects on the anvil amid rising cases and uncertainty in the three months ended June.

New projects in the June quarter were down 13.4 per cent compared to March, coming in at Rs 1.55 trillion, shows data from the Mumbai-headquartered Centre for Monitoring Indian Economy. The value of completed projects also halved to Rs 50,000 crore as Covid cases surged. Figures are 70-95 per cent higher than the same quarter last year because of the national lockdown at the time.

The country had gone into a complete lockdown around the end of March 2020. New projects were down to Rs. 0.91 trillion in June 2020. Only projects worth Rs 26,000 crore were completed then. There has been a rise in subsequent quarters as the economy opened up. Governments imposed localised lockdowns again as daily cases crossed over 400,000 in the June 2021 quarter.

The fall in capital expenditure (capex) reflected in new projects was expected on account of the lockdowns amid rising cases as well as uncertainty about the future, said CARE Ratings chief economist Madan Sabnavis. Businesses are more likely to invest when there is some clarity on future prospects. That said, things may look up a little from here on a relative basis, according to him.  

“Next quarter may be better than this quarter,” he said of private capex in September. He added that it is still unlikely to be at levels seen during 2018-19 and 2019-20.

"The central government is trying to push capex," said Sreejith Balasubramanian, Economist - Fund Management, IDFC Asset Management Company. State governments have a greater share of overall government capital expenditure. They have seen a slowdown because of uncertainty over their finances, he pointed out.

Trends which would play a role in capex in the days ahead include exports, PLI (Production-Linked Incentive) schemes, the real estate recovery, companies' decisions on deleveraging and monsoon. Some sectors like the automobile industry are doing well because of cyclical factors. The medium term outlook for private capex would await a consumption recovery, said Balasubramanian.

The Reserve Bank of India Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the October-December 2020 quarter (Q3:2020-21) showed an improvement in capacity utilisation after a sharp fall on account of the national lockdown in the June 2020 quarter. Companies typically create new production capacities when they feel that demand will exceed their existing production capacities.

“The aggregate level capacity utilisation (CU) improved further to 66.6 per cent in Q3:2020-21 from the level of 63.3 per cent recorded in Q2:2020-21, on the back of strengthening of production activities and easing of the restrictions related to the...(Covid-19)...pandemic,” said the survey. This recovery is expected to have been affected in the June 2021 quarter as restrictions were imposed once again to control rising cases across the country.

That said, the extent of economic losses is expected to be lower in June 2021 than in the same quarter last year, according to a 17th June Motilal Oswal Financial Services ‘EcoScope’ report authored by research analysts Nikhil Gupta and Yaswi Agrawal

“On the positive side, though, the economic situation...appears to have bottomed out in May 2021. Data for the first two weeks of June 2021 indicates improvement in economic activity,” it said.