Value of new project announcements down 33.4% in June quarter: CMIE

A IIFL Securities' India-Economy report notes new project announcements had also fallen year-on-year by 13 per cent. Investment in the four quarters ending June were at five per cent of GDP

New project announcements aren’t as plentiful as they once were. The June quarter is an example. Due, it appears, to low capacity utilisation and fundamental changes in some segments that had previously contributed in a big way to such announcements.

Which means the September quarter numbers will be key for hope of an investment cycle pick-up. Headwinds in the period  afterwards makes a pick-up difficult after this quarter.  

The value of new project announcements in the three months ending June dropped 33.4 per cent over the previous quarter to nearly Rs 2.3 trillion, shows data from Centre for Monitoring Indian Economy (CMIE).  

Nor was it unique to this quarter. IIFL Securities’ India-Economy report notes new project announcements had also fallen year-on-year by 13 per cent. Investment in the four quarters ending June were at five per cent of gross domestic product (GDP).

“These are the lowest levels of investment announcements in 20 years, significantly below the peak of 60 per cent of GDP in FY07/08,” said the July 20 report, authored by research analysts G V Giri and Amit Tiwari.

However, companies have not been using all their existing capacities. The Reserve Bank of India checks on this with a sample of manufacturing firms in each quarter. Recent data from this Order Books, Inventories and Capacity Utilisation Survey (OBICUS) puts capacity utilisation around 74 per cent. This means a quarter is unused, providing little incentive for companies to invest in new capacity.

New project announcements are also hit by changes to, for instance, the power sector. IIFL notes how new investments have shifted away from large power plants to smaller ones in renewable energy. There have also been stalling issues in the real estate sector and metals and mining, says the brokerage.

These segments also have a lot of projects under implementation, which means little room for new announcements.

However, there is room for optimism, according to the central bank.  

“At the aggregate level, CU (capacity utlisation) stood at 74.1 per cent in Q3 (December quarter) of 2017-18, with a coincident uptick in the de-trended index of industrial production… Seasonally adjusted CU also increased for the first time in FY18, to 74.3 per cent in Q3,” said the OBICUS survey. It is released with a lag, with this one in April 2018. The survey noted that order books have also been on the rise, suggesting more demand.