India’s largest states, including Uttar Pradesh and Bihar, are lagging compared to other states in attracting new investments in projects if the Reserve Bank of India’s latest figures are any indication. RBI’s data for the last five years (2012-13 to 2016-17) shows that 62 per cent of the projects were predominantly taken up in Gujarat, Odisha, Maharashtra, Andhra Pradesh, Chhattisgarh, Madhya Pradesh and Karnataka, showing the skewed nature of the country’s industrialisation.
According to the RBI study on private corporate investment released today, Gujarat accounted for the highest share (22.7 per cent) in 2016-17 followed by Maharashtra (8.6 per cent), Andhra Pradesh (8.2 per cent), Madhya Pradesh (7.4 per cent), Karnataka (6.6 per cent), Telangana (5.5 per cent) and Tamil Nadu (4.5 per cent). Andhra Pradesh recorded a fall in its share from the previous year while Gujarat gained. Five states accounted for 53.5 per cent of investments while the remaining 24 states and 7 Union Territories accounted for the rest.
The RBI study says power sector projects occupied a major share in all these states with the exception of Maharashtra and Tamil Nadu where the construction industry had a majority of projects with 54.3 per cent and 67 per cent, respectively. “Other than power, the industries with sizeable planned investment include textiles and transport equipment and part industries in Gujarat, cement and roads and bridges in Karnataka and pharmaceutical and drugs in Telangana,” it said.
However, the RBI report has revealed a significant fall in the capital expenditure of projects planned in the current fiscal. Based on the projects which have been sanctioned in preceding years, the planned capex could amount to Rs 69,400 crore in 2017-18 against Rs 154,800 crore in 2016-17 and Rs 174,400 crore in 2015-16. This is a big fall from Rs 361,800 crore of capex planned in 2011-12, after which capex planned has been falling year after year. With corporate performance taking a beating in the wake of demonetisation and GST, it is unlikely that it will match the capex planned in the previous year, a senior banker said.
“Based on the assessment of pipeline projects already undertaken, an additional Rs 85,400 crore worth of capex would have to come from new investment intentions to match the level estimated for 2016-17,” the RBI said. However, the RBI study has expressed optimism saying that “the near term outlook for new investment appears to be improving, as reflected in continued intentions to commission projects in power and construction sectors, in the first half of FY18. FDI and private placement of debt has gained momentum and should boost financing of capex in the year. Although there was a seasonal drop in new project announcements in Q1, the investment climate may improve in subsequent quarters in view of business sentiment polled in various surveys and policy initiatives on GST and FDI.
India Inc has announced more investment plans in 2016-17. Altogether 922 firms made investment plans in 2016-17 aggregating Rs 206,400 crore as against 700 companies with investment intentions totalling Rs 135,100 crore in 2015-16, the RBI said.
Normally, capex on a project is generally spread over multiple years. Firms are required to indicate the proposed plan for such expenditure while applying for financial assistance from lenders. The phasing details indicated that around 40 per cent (Rs 72,800 crore) of the total proposed expenditure would be spent in 2016-17, 23 per cent (Rs 42,000 crore) in 2017-18 and 20 per cent (Rs 37,200 crore) beyond. Around 17 per cent of total cost of the projects assisted in 2016-17 was spent during FY14 to FY16, the RBI said.
“It’s not necessary that all the investment plans announced by companies will materialise. Many of the plans will remain on paper as evident in the last five years. Besides, many corporates had postponed their plans in the wake of demonetisation and GST. Credit offtake has declined,” said the senior official of a leading nationalised banks. According to ICRA’s estimates, the growth in aggregate revenues of 448 companies slowed down to 5.3 per cent during Q1 of FY 2018 as compared to the preceding quarter (Q4 FY2017 – 8.3 per cent) when performance of corporate India had started showings signs of recovery from the demonetisation move.
On the other hand, banks, which are struggling with huge stressed assets, insolvency proceedings and provisioning are also not showing much enthusiasm in pumping credit into the industry. RBI figures show that outstanding bank credit to medium industries declined by 7.7 per cent to Rs 100,500 crore during the 12 months ended July 2017.