Investment outlook stays dim, job scene picks up

Karnataka, Gujarat, Maharashtra get most investment proposals

The outlook for a broad-based revival in the private investment cycle remains bleak, though the silver lining is a likely pick up in the job scenario, data shows.

The number of investment proposals filed during April to October in the current financial year was 22.3 per cent lower than those filed over the same period in the previous year. A similar decline was observed in the value of investments — estimated to be 17.6 per cent lower in the current financial year than in the previous financial year.

But while the value of investments proposed has declined, employment expected to be generated through them was higher at 467,000, as compared to 358,000 last year. Perhaps, this reflects a shift of investments in favour of more labour-intensive industries. 

The Department of Industrial Policy and Promotion (DIPP) releases data on investment proposals filed through industrial entrepreneurs’ memoranda (IEMs) and direct industrial licences (DILs). IEMs are filed by non-MSME (micro, small and medium enterprises) category industries, where investment in plant and machinery is more than Rs 10 crore in case of manufacturing and Rs 5 crore in case of the service sector. DILs have been issued since October 2003 for items under compulsory licensing under five categories.

Data showed in April to October, the number of proposals declined by 22.3 per cent to 1,093, from 1,407 a year ago. A closer look at monthly data showed in the current financial year, the number of proposals filed has been lower in every month than in the previous financial year. In fact, since demonetisation last November, the number of proposals have been higher in only two months than in the previous year. 

The DIPP data showed at the aggregate level, the value of investments proposed through IEMs and DILs has declined 17.6 per cent to Rs 2.63 lakh crore in April to October from Rs 3.2 lakh crore the year before. In fact, barring April, the value of investments proposed was lower in every month in the current financial year, as compared to the previous year.

To put these numbers in perspective, the investment proposed through this route was a staggering Rs 15.39 lakh crore in 2011. It then fell sharply to Rs 5.67 lakh crore in 2012, declining in subsequent years to a low of Rs 3.11 lakh crore in 2015. Thereafter, it rose to Rs 4.14 lakh crore in 2016. 

A state-wise break up of IEMs showed that Karnataka, Gujarat and Maharashtra accounted for more than two-thirds of these investment proposals. Karnataka accounted for roughly 43 per cent of these proposals at Rs 1.49 lakh crore, followed by Gujarat at Rs 72,715 crore (20.1 per cent) and Maharashtra at Rs 27,145 crore (7.8 per cent). 

Notwithstanding the growth of gross fixed capital formation (GFCF) in the first half of the current financial year and the expansion in capital goods in the Index of Industrial Production (IIP), this decline in investment proposals suggested that the outlook for a broad-based revival in the investment cycle continues to remain bleak.

“It’s too early to conclude that the three months of healthy growth of capital goods marks the beginning of a broad-based recovery in the investment cycle,” said Aditi Nayar, principal economist at ICRA. “Growth in capital goods in October 2017 benefitted from the sharp expansion in two categories — bodies of trucks, lorries and trailers (199 per cent) and separators, including decanter centrifuge (61 per cent).”

Pronab Sen, former chief statistician of India, said: “While investments (GFCF) have grown in the last quarter, as a percentage of gross domestic product it is falling. The key is to kick-start private investment cycle.”