You are here: Home » Economy & Policy » News
Business Standard

Companies shelve capex plans on pandemic blow, new projects decline 88%

Completed projects are down 74.3 per cent to Rs 43,000 crore

Topics
Capex | Capex spending | Coronavirus

Sachin P Mampatta  |  Mumbai 

new projects
Stalled projects are down 52.5 per cent to Rs 29,000 crore

New projects involving setting up of factories, buildings and other assets fell to their lowest levels since the (Covid-19) pandemic began. While there were Rs 7.01 trillion worth of new assets in December 2019, this fell 88.6 per cent to Rs 80,000 crore for the three months ending December 2020, shows data from project tracker Centre for Monitoring Indian Economy (CMIE).

Money spent on creating new assets like manufacturing plants is called capital expenditure and can be a key driver of economic growth. Companies typically invest in setting up additional manufacturing or production capacity when they anticipate that their existing capacity will not be able to keep up with demand. The spread of the Covid-19 pandemic hit demand sharply, shows official data.

Capacity utilisation fell to less than 50 per cent according to the Reserve Bank of India in its Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for Q1FY21 released in October. The data is released with a lag.

“At the aggregate level, capacity utilisation (CU) fell sharply from 69.9 per cent in Q4FY20 to 47.3 per cent in Q1FY21, as domestic economic activity was impacted severely by the lockdown imposed during the quarter to contain the spread of the Covid-19 pandemic. Seasonally adjusted CU also declined to 48.2 per cent in Q1FY21 from 68.2 per cent in the previous quarter,” it said.

Companies have less incentive to invest in new assets when the existing ones aren’t being fully utilised.

Completed projects are down 74.3 per cent to Rs 43,000 crore. Stalled projects are down 52.5 per cent to Rs 29,000 crore.

Revived projects fell 90.2 per cent to Rs 8,000 crore.

There could be a selective revival in certain parts, according to a Edelweiss Securities Economy report.

“We foresee the landscape (marred for past 10 years) perking up in select pockets amidst global reflation. Among key categories–government capex, corporate tradeable (manufacturing), corporate non-tradeable (services), housing and others–we expect good traction in manufacturing (tail-lifted by exports) and pockets of real estate (upper income, metros) helped by lower rates,” said authors Kapil Gupta, Prateek Parekh and Padmavati Udecha.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, January 01 2021. 14:21 IST
RECOMMENDED FOR YOU
.