Announcement of new projects during April-December of this fiscal witnessed a contraction of 29 per cent to Rs 6.8 trillion from Rs 9.5 trillion in the year-ago period.
A study by CARE Ratings shows that new project announcements by the government tumbled 44 per cent, while those in the private sector fell 19 per cent in the period under review.
At 47.4 per cent, services sector had the highest share in virgin project announcements followed by transport services (42.4 per cent), electricity (21 per cent), manufacturing (20.9 per cent), chemicals & chemical products (12.5 per cent) and construction & real estate (8.5 per cent).
While cumulatively, fresh project announcements fell in April-December, they saw an upsurge during Q3 or October-December period. New projects announced in Q3 stood at Rs 4.3 trillion, 37 per cent higher than the corresponding period of last fiscal. Project announcements in the government sector tanked 30.14 per cent, but those in the private sector recorded a 60 per cent jump from Rs 2.3 trillion to Rs 3.7 trillion during Q3.
Overall investment activity in the economy was driven by two factors - flow of funds covering bank credit, corporate bonds, external commercial borrowings (ECBs) and foreign investments and movement in key investment and industrial production indicators.
The findings of the CARE Ratings report establishes that bank credit to the industrial sector contracted by 3.9 per cent in April-November of FY20. In the comparable period of last financial year, the credit had inched up 0.3 per cent. The steepest contraction in credit offtake was noted in micro & small industries (4 per cent). Medium industries and large industries too, saw their credit declining by 3.6 per cent and 3.4 per cent respectively.
“Total corporate bond issuances (both private and public) during April December (based on Prime Database) have marginally declined from Rs 4.1 trillion to Rs 4 trillion. The share of non-financial sector has increased from 19.4 per cent in FY19 to 26.5 per cent in FY20. Within this, non-financial, the share of services sector (other than financial) has increased from 9.7 per cent to 14 per cent while the share of manufacturing has increased from 2.2 per cent to 4 per cent," the report adds.
On the positive side, foreign direct investment (equity inflows) rose 15 per cent in April-September, stepping up from $22.6 billion to $26.1 billion. Out of $26.1 billion FDI in FY20, the sectors receiving highest contribution include telecommunication ($4.2 billion) and computer software ($ 4.0 billion) and other services sector ($4.5 billion) which accounts for almost 50 per cent of the total.
Investment activity in the economy has remained downbeat indicated by lower new projects announcements during the first three quarters of the current fiscal, contraction in capital good production, significant decline in capacity utilisation.
Commenting on the outlook, the report noted, “A turnaround in bank credit disbursements to the industrial segment and higher borrowings via corporate bonds by the non-financial segment would be important for the investment activity to witness a reversal from the current position. Also, need to closely monitor the new projects announcements of the industrial segment over the next few quarters."