Investments in new projects by the corporate sector plummeted 27 per cent during the fiscal ended March 2015 in spite of a host of measures by the government to boost the economic growth in the last one year.
A Reserve Bank of India (RBI) study on corporate investments released on Thursday — two days after Prime Minister Narendra Modi asked industry captains to “invest now” — estimates that a total capital expenditure of Rs 1,93,300 crore (including bank finance, IPOs and GDR issues) would have been incurred by the companies in 2014-15, reflecting a reduction of 27 per cent over the previous year. Of this Rs 71,800 crore is planned to be spent by the companies in fresh projects in 2014-15, it said.
In fact, capex by India Inc has been falling steadily over the last four years. From Rs 3,68,100 crore in 2011-12, investments plunged to Rs 3,05,000 crore in 2012-13, Rs 2,64,800 crore in 2013-14 and Rs 1,93,300 crore in 2014-15. It is set to decline further in the current year.
The central bank has listed several reasons for the decline in new project investments. In 2014-15, domestic economic activity was weak marked by subdued corporate performance, low manufacturing growth and a sluggish credit expansion. While corporate profits were under pressure in the last couple of quarters, credit offtake from banks hit a 20-year low. Banks, hit by a surge in bad loans, also turned wary over extending finance to new projects.
The situation does not look rosy in the current year. The capital expenditure already planned for 2015-16 amounted to just Rs 81,900 crore if the companies stick to their investment plans. In order to improve the level of capex envisaged in 2014-15, a capital expenditure exceeding Rs 1,11,400 crore would have to come from new investment intentions of the private corporate sector in 2015-16, the RBI said.\
However, the RBI study talked about some positive signs such as lower inflation, lower fiscal and current account deficit and surging foreign investment inflows. The low manufacturing growth could improve with policy efforts and better input supply. “Though consumption demand remained weak, an upturn in the capital goods production seems underway, which could signal a revival in the investment cycle,” it said.
A look at the size-wise pattern of projects for the current year indicated that there was only one mega (Rs 5,000 crore and above) project which has been undertaken. While the number of high value projects (with envisaged cost of Rs 1,000 crore and above) decreased, their share in the total project cost at 59.5 per cent remained almost the same as that of last year. Out of the 328 institutionally assisted projects, more than 50 per cent of the projects (223 projects) are small with size of less than Rs 100 crore.
Among states, Odisha, Maharashtra, Rajasthan, Gujarat, Andhra Pradesh and Chhattisgarh received higher investment for the major industries, accounting for 66.8 per cent of envisaged project cost of institutionally assisted projects in the current year, the RBI study says. Majority of power projects were taken up in Chhattisgarh and Utter Pradesh while ‘textile’ sector was dominated by Gujarat and Maharashtra. Major ‘metal’ projects were based in Odisha and Maharashtra.