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Wednesday, August 10, 2022

Signals aplenty that slowdown is spreading across India Inc

On Thursday, Prime Minister Narendra Modi is learnt to have reviewed the state of the economy with Finance Minister Nirmala Sitharaman and top officials of the Ministry to assess measures being planned to tackle the slowdown.

Written by Pranav Mukul , Anil Sasi | New Delhi |
Updated: August 16, 2019 10:46:26 am
indian economy, indian economy slowdown, consumption slowdown, pm modi nirmala sitharaman meet, india automobile sector slowdown Prime Minister Narendra Modi is learnt to have reviewed the state of the economy with Finance Minister Nirmala Sitharaman on Thursday. (Express File Photo)

Alongside the dip in consumption demand, the steady slide in investment activity has been progressively intensifying — evidenced by a nearly 30 per cent drop in capital expenditure by the government in the June 2019 quarter alongside a near halving of new project announcements by India Inc.

On Thursday, Prime Minister Narendra Modi is learnt to have reviewed the state of the economy with Finance Minister Nirmala Sitharaman and top officials of the Ministry to assess measures being planned to tackle the slowdown. There are indications that the slump in investment activity could be prolonged as a majority of manufacturing companies remained pessimistic about the near future.

Of the 1,231 manufacturing companies surveyed by the Reserve Bank of India in its April-June 2019 Industrial Outlook Survey of the Manufacturing Sector, only 31.6 per cent of manufacturers said they expected an increase in order books — the lowest number in nearly a decade.

New projects are not taking off while those under execution are hanging fire. Of the 65 ongoing projects under Public Private Partnership (PPP) mode monitored by the Ministry of Statistics and Programme Implementation, 37 were reported as delayed as on May 1, 2019.

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Implementation delays have a cascading impact on payment schedules further risking viability of projects. For state-owned engineering major and the country’s largest power equipment producer BHEL, the “non-collectible,” or the deferred debt category where dues are paid by the customer only on achievement of milestones by the capital goods company has been steadily climbing — up from Rs 38,993 crore at the end of the September quarter in 2018 to Rs 39,700 crore in the December 2018 quarter.

Also read | India Inc seeks stimulus, easier credits, GST cuts; FM meets Industry leaders

Given the stress in the system and the inability of smaller firms to access capital, capital goods major Larsen & Toubro is resorting to handhold its small vendors and expedite payments to them, at the cost of expanding its own net working capital.


According to Arnob Mondal, L&T’s Vice President, Investor Relations, the company is supporting smaller vendors “badly impacted by the tough liquidity conditions.” In the June quarter, L&T has supported vendors by releasing “a significant amount of payments to vendors”, which has brought down vendor credit and has, in turn, led to “an increase in net working capital” for the company, Mondal indicated in a July earnings call.

BHEL is banking on a new initiative — a dedicated ‘Project Closure Synergy Group’ — to ensure early wrapping up of projects and resolving outstanding issues with stakeholders.

The June 2019 quarter was one of the worst in terms of fresh projects by India Inc, with new announcements sliding to just Rs 71,300 crore compared to a quarterly-average of Rs 2.7 lakh crore in 2018-19, according to CMIE estimates. New capacity expansion project announcements halved from Rs 21 lakh crore in 2014-15 to Rs 10.7 lakh crore by 2018-19, as per CMIE’s CapEx database.


Investment sentiment is down as corporate India grapples with excess capacity, falling asset utilisation and shrinking returns on capital employed, alongside issues such as harassment by taxmen and the cost of funds for corporates continuing to stay high despite the RBI’s cumulative back-to-back reductions in the repo rate this year to the tune of 110 basis points.

Also read | FMCG companies red-flag gathering rural slowdown

The anaemic June factory output data measured through the Index of Industrial Production (IIP) estimate and the contraction in 15 of the 23 sub-sectors of manufacturing further reinforces the slowdown narrative enveloping more sectors.

Factory output growth slipped to a four-month low of 2 per cent in June, lower than the 7 per cent growth recorded in the same month last fiscal while for the April-June 2019 period, the IIP was weighed down by poor show in manufacturing and mining sectors to grow 3.6 per cent as against 5.1 per cent in the same period last year.

RBI’s Industrial Outlook Survey showed that 57.3 per cent of units do not expect any change in order books for the July-September quarter – the highest since 2000-01 (from when the historical data is available).

Industrial and consumer electricals manufacturer Havells India noted that the sluggish growth in its switchgears business was reflective of the slowdown in the construction sector and that recovery could be “stretched out,” Anil Rai Gupta, CMD of Havells India, said during an analyst call post June-quarter earnings.


Freight transport – an indicator of economic activity – also pointed in the direction of a possible slowdown. During the first quarter of 2019-20, total air freight – domestic and international – in the country dropped 5 per cent year-on-year to 8.42 lakh tonnes. For the first quarter of the previous financial year, air freight volumes had grown 6.6 per cent .

Similarly, CARE Ratings data showed that growth in cargo handled by major sea ports during April-June 2019 also slowed down to 1.1 per cent on year, compared with a year-on-year growth of 4 per cent in the same quarter last year. “Fertiliser (including raw) volumes recorded a 14.4 per cent decline, followed by miscellaneous cargo which recorded 10.4 per cent decline and thermal coal which 4.7 per cent decline in volumes handled during April-June FY20 vs April-June FY19,” the ratings agency noted in a research report. “The slowdown in (cargo) volume and passenger numbers across modes of transport does relate well with subdued economic activity (and) both domestic and foreign trade.”

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First published on: 16-08-2019 at 04:42:04 am

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