Fresh investments plummet in June quarter despite govt steps

Investment pace had picked up in March quarter

Investments fell sharply in the June quarter of FY18 despite the government taking several steps to attract capital.

Indian firms announced only 448 new projects, of an aggregate investment of Rs 1.35 lakh crore, in the June quarter. This was far lower than the average quarterly announcements of Rs 2.2 lakh crore seen in the past three years, according to the statistics collated by research firm CMIE.

In the quarter ended March, fresh investments worth Rs 2.92 lakh crore were announced. In the June quarter of FY17, Indian companies announced investments worth Rs1.4 lakh crore.

Fresh investments are a good indicator of the confidence of companies, both in the private and public sectors. 

Analysts said investments were slowing down despite the government announcing Make In India, Digital India and Smart Cities initiatives to attract manufacturing and create jobs. Chief executive officers said capacity utilisation in their manufacturing plants was still hovering at an average 75 per cent. They said they want utilisation to peak before making fresh investments.

Besides, banks are focusing on resolving stressed assets in the steel, power and telecom sectors, instead of lending to new projects. 

Completion activity also remained weak, with projects worth only Rs1 lakh crore being commissioned during the quarter. The largest project completed was phase-I of Jindal Steel & Power’s Angul steel plant, worth Rs 33,000 crore, followed by phase-I of the Bangalore Metro Rail project, which involved an investment of Rs 14,000 crore.

Besides, 52 projects announced earlier were also scrapped during the June quarter, with a 6,000-Mw nuclear power plant in Mithivardi, Gujarat, (worth Rs 60,000 crore) leading the pack. Land acquisition hurdles had hit the project, to be set up by NPCIL, and it was shifted to Andhra Pradesh. Another marquee project that failed to fructify was Posco’s 12-million-tonne steel plant in Paradip, Odisha, with a proposed investment of Rs 50,000 crore.

The aggregate value of projects scrapped in the June 2017 quarter was Rs 2.4 lakh crore. The stock of stalled projects also increased during the quarter, with stranded projects increasing to Rs 2.4 lakh crore, against just Rs 35,000 crore of stalled projects during the March quarter.  

A risk profile of select industries at the end of March 2017 showed the telecommunication industry had the largest debt, with negative profitability. 

The industry also had relatively high leverage. The power, construction and iron & steel industries suffered from relatively high leverage and high interest burden, according to a report of the Reserve Bank of India, released last week.