Number of industrial investment proposals at record low in 2020, shows data

The number of industrial investment proposals touched a record low in 2020, the pandemic year. And in value terms they were at a three-year low as economic activity came to a standstill during the prolonged lockdown in the quarter ended June.
 
The data for the last quarter of 2020 dashes hopes of any significant improvement in investment sentiment with proposals sharply lower than in the previous year.
 
During the year, 1,441 investment proposals in the industrial sector were filed, which is 40 per cent lower than the 2,385 of 2019, according to the data with the Department for Promotion of Industry and Internal Trade (DPIIT). Besides, it is the lowest since 1998, which is the latest available data.
 
The proposed investment in the industrial sector is worth Rs 4.29 trillion, down 36.8 per cent from the Rs 6.79 trillion the previous year (2019).
 
It is the lowest in three years, with the proposed investment in 2017 at Rs 3.95 trillion. Proposed investment materialises in six months to three years. This may suggest investment activity may take some time to pick up pace and reflect in the key economic data.
 
According to the Reserve Bank of India data, aggregate industrial capacity utilisation stood at 63.3 per cent in the July-September quarter, after touching a historical low of 47.3 per cent in the quarter ended June, which witnessed pandemic-related restrictions and lockdown.

 
Aditi Nayar, principal economist, ICRA Ratings, said only when India’s capacity utilisation crossed 73 per cent would there be more expansion by the private sector.
 
“Over the past 10 years, the peaks in capacity utilisation have been between 73 per cent and 75 per cent. That’s what we are waiting for. The last number from the RBI said 63 per cent, so we are a fair bit off. The investments could be more concentrated in sectors where the performance-linked incentives have been announced, or generally where there is shifting of supply chains from China,” said Nayar.
 
India’s gross domestic product is set to fall 8 per cent against an earlier estimate contraction of 7.7 per cent in 2020-21, according to the second advance estimates, released by the National Statistical Office.
 
While gross fixed capital formation, a proxy for investment, declined 46.4 per cent and 6.8 per cent in the first and second quarters, it grew 2.6 per cent in the third quarter and is estimated to expand 2.8 per cent in the fourth quarter.
 
Proposed investment is based on the Industrial Entrepreneurs’ Memorandum (IEM), filed by investors, and industrial licences and letters of intent issued by the DPIIT.
 
Karnataka, Gujarat, Maharashtra, Odisha, and Chhattisgarh emerged as the top investment attractions. Gujarat, which accounted for half the proposed investment in 2019, got just 11 per cent of it in 2020. Meanwhile, about 40 per cent went to Karnataka.
 
The electrical equipment sector accounted for 42 per cent of investment proposals in value terms at Rs 1.7 trillion, compared to Rs 76,700 crore in 2019. Metallurgical industries accounted for 22 per cent in value terms, with 100 projects proposing investments worth Rs 91,516 crore. Investment sentiment continued to remain muted in the last quarter of the 2020, with 343 investment proposals against 590 received in the corresponding period of the previous year. In value terms, they accounted for Rs 79,301 crore.
 
Part A of the IEM is an indicator of business sentiment in the economy and an early projector of the economic trajectory. Part B is filed at the time of commencing commercial production for the proposals of investment in Part A, under the Industries (Development and Regulation) Act.