Covid-19 induced lock-down to dampen investment scenario: Study

A countrywide lockdown imposed till April 14 to counter the impact of the deadly Coronavirus is slated to dampen the investment scenario. Adding to the woes of a slump in domestic GDP growth, the recent outbreak of Covid-19 and its snowballing into a major global health crisis is bound to have ramifications on India’s future investments, a study noted.

India is already in the throes of a bleak investment scene. Four out of the six parameters- investment rate, bank credit offtake, industrial production of capital goods and new investment projects are pointers to deteriorating investment scenario even though investment intentions and market borrowings have shown some signs of resilience.

“It needs to be kept in mind that the last two months of FY20 have been marked with Coronavirus related shutdown in economic activities which will add to the existing investment stagnation. Thus, these parameters are likely to see a downward revision”, the report by CARE Ratings noted.

Quoting figures from the Ministry of Statistics & Programme Implementation (MoSPI), the study observed that the investment rate measured as Gross Fixed Capital Formation (GFCF) as a percentage of GDP, a barometer of investment demand, tumbled to nearly two-decade low. As per the second advance estimates, it is seen at 27.5 per cent of the GDP. Compared with a year-ago period, the investment rate was 1.5 per cent lower than 29 per cent of GDP in FY19.

Bank credit offtake, too, remained subdued in FY20. Incremental bank credit until the middle of March stood at 3.8 per cent, nearly a third of 10.8 per cent in the comparable period of last financial year. The year-on-year (y-0-y) growth in bank credit (as on March 13) was 6.1 per cent, less than half of 14.5 per cent growth in the period under review. Bank credit disbursements have remained muted in FY20 due to overhang of NPA (Non-Performing Assets) issue in the banking system, liquidity crisis in the NBFC (Non Banking Financial Companies) segment and increased deleveraging activities by corporate.

Between April and February of this financial year, the industrial sector has seen contraction in incremental bank credit growth by 2.4 per cent as against the 1.9 per cent growth noticed in the corresponding period of 2018-19.

For the first time in five years, capital goods registered a contraction in production of capital goods. Capital goods index fell sharply by 11.6 per cent during April-January of FY20 compared to 5.7 per cent growth registered in the same period of last fiscal. Deceleration in capital goods was led by dip in commercial vehicles segment. In the backdrop of auto sector slowdown, production of commercial vehicles contracted by 26 per cent during April-January, also exerting pressure on production of auto ancillaries.

Reviewing the macro investment ambience, the study said that new investments in various projects fell by 10 per cent to Rs 9.1 trillion between April and December of FY20 compared with Rs 10.1 trillion logged in the year ago period. Services sector accounting for 40 per cent share in new projects contracted four per cent y-o-y.

In its prognosis, the study commented, “Recovery of investment in the short term is not likely. Since mid-January 2020, Novel Coronavirus pandemic has led to disruptions in the economic activities globally. Domestic activities were already constrained on account of disruptions in the global supply chain and were further impacted post announcement of lockdown in the country. This could dampen investment scenario in FY20”.