The investment cycle isn’t turning just yet with the private sector in no hurry to add capacity, data from Centre for Monitoring Indian Economy (CMIE) for the three months to June show. The value of new projects in Q1FY17 at an anaemic Rs 1.3 lakh crore was lower 60 per cent sequentially, falling below the average of Rs 2 lakh crore recorded in FY16 and at a fourth of the average between FY06 and FY11.
Moreover, the value of stalled projects at Rs 11.2 lakh crore remained near an all-time high, with three-fourths of these promoted by the private sector. Projects have been stuck either because regulatory clearances haven’t come through or because inputs are in short supply.
Further, most promoters are also not able to cobble together the necessary funds to put up a venture and even those that can aren’t sure they want to add capacity at a time when the outlook for demand is hazy.
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Loan growth in the last three months or so has remained subdued at around 9-10 per cent year-on-year and bankers confirm there are few takers for project finance. Most high-frequency indicators suggest the economy remains sluggish. An index of eight core sectors that make up 38 per cent of the Index of Industrial Production rose just 2.8 per cent in May compared with 4.4 per cent last year. Auto manufacturers clocked in smaller volumes of medium and heavy commercial vehicles in June, a fall of 4 per cent.
“We believe that these are early signs of a slowdown and industry volumes could weaken significantly if replacement demand comes off,” Kotak Institutional equities commented in a note.
“Excess capacity and high leverage continue to weigh on private-sector business confidence,” economists at Standard Chartered Bank wrote in a note. They pointed out that increased public investment spending in FY16 and the budgeted spends for FY17 has so far failed to ‘crowd in’ private-sector investment. FE