New Investment Proposals Plummet In April-June Quarter: CMIE Data
Smoke billows from a steel plant in India. Photographer: Dhiraj Singh/Bloomberg

New Investment Proposals Plummet In April-June Quarter: CMIE Data

Fresh investment proposals fell sharply in the April-June quarter as the coronavirus pandemic disrupted economic activity and dragged down sentiment.

New projects worth only Rs 56,000 crore were proposed the first quarter of the financial year, according to early estimates by the Centre For Monitoring Indian Economy. Though an upward revision can be expected in final figures, they would still be significantly lower than Rs 3.37 lakh crore worth of new projects in the January-March 2020 quarter.

Apart from a decline in fresh investments, fewer projects were completed in the quarter. However, stalled projects declined.

  • The value of completed projects also dropped to Rs 14,000 crore in the April- June 2020 quarter, from Rs 1.69 lakh crore in the January-March 2020 quarter.
  • The value of stalled projects stood at Rs 10,000 crore in the April-June 2020 from Rs 75,000 crore in the preceding quarter.

New project announcements contracted by 51.5% in the April-June quarter on an annual basis, said Sameer Narang, chief economist at Bank of Baroda, adding that the decline was across the board. As a percentage of outstanding projects, new project announcements were at 4.7%, compared with an average of over 27% in the last 12 quarters, he said. Such a low number was last seen in June 2004 when it fell to 3.52%, he said.

While new projects by the government have fallen by 65% , those by the private sector fell by 32% on an annual basis. Completed projects have fallen by 83.5% annually, led by a 92% decline in private projects.

A pick-up appears evasive in the near future. Gross fixed capital formation is likely to see the sharpest contraction in the GDP data for the April-June 2020 quarter, said Devendra Pant, chief economist at India Ratings & Research. Demand remains weak and is unlikely to pick up. As such, despite a sequential improvement in the remaining quarters, when investment will reach levels seen before Covid-19 remains to be seen. Even then, capex was weak and capacity utilization was at record lows, Pant said.

Investments had contracted by 6.5% in fourth quarter, after a contraction of 5.2% in the previous quarter, according to the GDP data. Capacity utilisation declined to 68.6% in the October-December 2019 quarter from 69.1% in the quarter before that. Low capacity utilisation points to an extended period of sluggish investment activity.

Narang remained optimistic. As the economy gradually opens up, we will see an increase in both new projects and the completion rate for existing projects, he said.

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