Abandoned investment intentions rise 7.21% to Rs 7.88 trn during Apr-Sep

Abandoned investment intentions across the country have rose 7.21 per cent to Rs 7.88 trillion during April-September of FY19 over the comparable period of last fiscal. The value of dropped investment intents is despite the growth in fresh investment proposals by 9.13 per cent to Rs 4.56 trillion, data by the Centre for Monitoring Indian Economy (CMIE) showed.

“Data shows intentions  by  way  of  announcements  have  been  positive  in  terms  of  a  larger volume  being  reckoned  as  has  been  the  case  with  the  investment  revived  during  this  period.  However,  the  investment dropped has increased. There is hence a mixed picture here”, a report by CARE Ratings noted.

The number of investment proposals as per IEMs (Industrial Entrepreneurs Memorandum) that were put forward between January and October 2018 was 1745-  higher  than  that  last  year  during  the  same  time  (1642).  However,  the  investment  volume  involved  is  slightly  lower  at  Rs 3.42 trillion as against Rs 3.49 trillion last year. These are only intentions which may not be realized to the full extent and  will be spread across years.

Gross fixed capital formation rate, a key macro economic indicator, improved to 29 per cent in April-September period of FY19 compared with 28.3 per cent in the same period of previous fiscal. Overall government capital expenditure (Capex) in April-October period of this fiscal increased to Rs 1.77 trillion, marking a growth of 9.25 per cent year-on-year in expenditure. Investments were primarily spread across sectors like Railways, Defence, housing and roads. Together, the four sectors accounted for nearly 80 per cent of the expenditure incurred.

IIP (Index of Industrial Production) growth for the first seven months of the fiscal year indicates that capital goods cumulatively increased by 8.6 per cent compared with 0.7 per cent last year. Electrical machinery on a cumulative basis (April-October) increased by 3.8 per cent and non-electrical by 7.3 per cent. In case of capacity utilization, there are signs of improvement in the rate which peaked in March 2018 to 75.2 per cent as per RBI data. It had decreased to 73.8 per cent in quarter ended June, 2018 (Q1 of FY19) and needs to be observed closely in the  next  two  quarters. 

“Normally,  a  rate  of  78-80 per cent  would  indicate urgency  in  furthering  investment.  The  capacity  utilization rate has been less than 72 per cent for quite some time now. There was a pick up post GST (Goods & Service Tax) implementation last year in Q3 and Q4 of  FY18. Hence, it remains to be seen if the last number of 73.8 per cent will be maintained or increased”, the report from CARE Ratings observed.

The ratings agency after its analysis of the different investment parameters, believes that to some extent, there has been a revival in investment climate in the country. The  cumulative inflows  of  foreign  direct  investment (FDI)  in  the  first quarter  have been  higher  than  the  corresponding period in the previous year. The trend of higher FDI inflows during the remaining part of the fiscal bodes well for the overall economy as it would also translate into higher domestic investment.