Investment in new projects remained same in 2012-13: RBI

Compared to last year, unlike investments in new projects, corporate leverage has increased gradually

Investments in new projects remained at the same level in 2012-13 compared to last year (2011-12), said the Reserve Bank of India (RBI) in its macroeconomic and monetary developments report for the first quarter released on Monday.

The projected cost from new projects, which were given loans by banks and financial institutions totalled Rs 2 lakh crore in 2012-13, which was at a similar level (Rs 1.9 lakh crore) in 2011-12 and significantly down from the year before (Rs 3.8 lakh crore in 2010-11), said RBI, adding corporate investment intentions remained subdued.  

The report further said corporate leverage (debt to equity) ratio has increased in 2011-12, reversing the trend in the previous two years. In 2011-12, the leverage ratio was 72.3 for companies, compared with 69 in 2010-11 and 69.7 in 2009-10. Net profits went down in Q4 of 2012-13, which grew by 3.1 per cent compared to 52 per cent in the same period last year due to higher employee expenses and lower support from other income, said RBI.

According to RBI, demand continues to be weak in the country due to deceleration in consumption and investments. “Private consumption in real terms has decelerated due to persistent high inflation, while investment is hobbled by structural constraints,” said RBI in the report.  

Consumer Price Index (CPI) inflation rules close to double digit. While slow growth is likely to keep demand conditions largely subdued, risks persist from the recent exchange rate depreciation and the pick-up in global commodity prices, especially of crude oil, the RBI report added. Moderation in demand is also a risk to budgetary projections for revenue, said RBI

CPI inflation was 9.9 per cent in June, compared to 9.3 per cent in May.  

Lower private consumption is the result of higher CPI inflation, RBI said. Corporate investment intentions are also slow because of overall negative business sentiment arising from slack cyclical conditions and structural factors. The central bank however said government actions have started addressing the situation.  “Government initiatives have started addressing infrastructure bottlenecks, although the progress is slow and half of 566 large central sector projects are delayed and have cost overruns of 18 per cent,” said RBI. RBI also said infrastructure bottlenecks have been a major factor in India’s low growth.

India’s GDP growth fell to a decade low of five per cent last year.

To remain on the path of fiscal consolidation is a challenge due to lower revenues and higher exchange rates which have compounded the problem in restraining subsidies.  However, it is important for the union government to take steps to contain its non-plan revenue expenditure within the limit set in the budget through subsidy reforms, said RBI.

According to the central bank, at the present juncture, it is important for the government to restrain its subsidy commitments and strike a judicious balance under its various budgetary heads by increasing investment in the productive sectors to get private investments.