Investments in new projects fall 46%

Investments in new projects slowed substantially in 2011-12, declining 46 per cent compared to the previous financial year, as investors were reluctant to invest in infrastructure projects in an uncertain economic environment. Existing investments, too, are at risk, as extended gestation periods and input supply shortages are affecting their viability.

In 2011-12, investments by large firms in new projects stood at Rs 2.1 lakh crore, compared with Rs 3.9 lakh crore in 2010-11, according to the Reserve Bank of India’s (RBI) annual report for 2011-12. Telecom, road, port and airport sectors saw sharp declines in investor appetite. The share of infrastructure investment, too, narrowed to 48.6 per cent from 54.8 per cent.

“This has had a ripple effect on the economy. Order books of capital goods-producing firms have declined, as the size of the pie has reduced. Their share has also gone down, as they were out-competed by cheaper imports from foreign firms,” RBI said.

GROWTH TREND
	2010-11 (Rs lakh cr)	2011-12 (Rs lakh cr)	Y-O-Y   change (%)
In new projects	3.9	2.1	-46
In infrastructure projects	2.2	1.0	-52
Source: RBI

Power crisis
While the rising losses of public sector undertakings hit the investment climate in the power sector, low coal production and supply shortages emerged as major bottlenecks in the infrastructure sector.

“The private sector added to the shortages due to the dismal record of producing coal out of the mining rights given to it. Therefore, unused mining rights need to attract deterrent penalties,” RBI said.

While the government plans to expand capacity in the power sector, investments in power projects are at risk due to coal shortages. RBI said there was an immediate need to resolve issues related to auctioning coal blocks, as the demand for coal was outpacing the domestic availability.

The banking regulator also cautioned possible drought in various regions would add to stress for state electricity boards, and banks might have to restructure their power sector loans. Some of these loans might also turn into non-performing assets, RBI said. Currently, banks have exposure of about Rs 3.3 lakh crore to the power sector.