Liquidity crunch may hit cos' investment plans: CMIE
The sudden and sharp fall in global financial markets, liquidity crunch faced by the country’s banking system and unsuccessful attempts by few Indian companies to raise funds from primary markets, heightened anxieties regarding fate of corporate investment plans, the Centre for Monitoring Indian Economy (CMIE) has said.
The Indian industry saw commissioning of investments worth Rs 40,000 crore in each of the first two quarters of FY09. However, the commissioning in the third quarter of FY09 was considerably lower at Rs 13,309 crore.
The CMIE’s CapEx team managed to contact companies setting up projects worth Rs 6 lakh crore.
While the companies showed a green flag to 77 per cent of investments, they informed us that the remaining 23 per cent came under the cloud of liquidity crunch. These projects have either been shelved or have been deferred, the CMIE said.
Of the total investment amount of Rs 1.4 lakh crore which has been shelved or deferred because of the liquidity crunch, 81 per cent (Rs 1.1 lakh crore) belong to the steel sector.
Tata Steel Managing Director B Muthuraman recently said that the global financial turmoil further delayed the company’s Phase I (Rs 20,000 crore) and Phase II (Rs 22,000 crore) of Jharkhand steel project expansion, which had made only a little progress in terms of land clearances ever since an MoU was signed with the state government in 2005.
JSW Steel has also decided to go slow on its capex plans worth Rs 59,500 crore.
Although projects have been delayed, the companies have not scrapped them completely, the CMIE said.
Large steel projects in India are facing bottlenecks in relation to land acquisition, rehabilitation of displaced people and forest clearances.
We believe that the commissioning of these projects may get delayed, but, investments will come up for sure as steel manufacturers would not want to miss out on the great business opportunity getting created because of potential domestic steel demand in the coming years from construction and infrastructure sectors and abundance of iron ore and coal mines in India, the report said.
The industry also saw a substantial amount of shelving of projects this year — Rs 94,925 crore during the first eight months of FY09 as compared with Rs 37,286 crore in FY 07 and Rs 83,225 crore in FY08.
The negative global sentiment is expected to make India companies go slow on fresh capital investments, the CMIE said.