RBI study: Private corporate investment plans fall for seventh year in a row

“Total capex of Rs 148,700 crore would have been incurred by the private corporate sector in 2017-18, of which Rs 80,200 crore was from fresh sanctions during the year. The year marked the seventh successive annual contraction in the private corporate sector’s capex plans. However, the envisaged capex from the pipeline projects already undertaken showed an improvement over the previous year’s pipeline,” the RBI study said. Many of the project investment plans of the private corporate sector have failed to take off and a number of the projects were abandoned or stalled amid an economic slowdown, huge corporate leveraging and poor project appraisals. Bank funds stuck in such projects trebled to cross the Rs 10 lakh crore mark.

However, the RBI said the projects sanctioned in the first half of 2018-19, together with the pipeline projects already undertaken, show some recovery in the capex cycle. “Going forward, investment activity is expected to gather pace, benefitting from the pipeline projects lined up by private corporates. A revival in the investment cycle could be underway in the medium term, as revealed in these investment plans. Recent efforts to strengthen balance sheets of both corporates and the banking sector should provide a conducive environment for a pick-up in capital formation,” the study said. The RBI has indicated that improved capacity utilisation and business expectations in the first quarter of 2018-19 polled by various surveys are providing lead indication of a reinvigoration of investment activity in the Indian economy in the period ahead.

On the basis of the pipeline projects sanctioned in preceding years, the planned capex could amount to Rs 79,200 crore in 2018-19, marking an improvement over the previous year (Rs 68,500 crore). Going forward, the level of corporate investment in 2018-19 from the new cohort of projects getting sanctioned in 2018-19 will also influence the aggregate capex for this year.

In the first half of 2018-19, 190 projects with a total cost of Rs 91,400 crore were sanctioned by banks and financial institutions. A total of 451 investment proposals aggregating Rs 115,800 crore were sanctioned through the three channels of finance (banks/FIs, bonds and IPOs).

According to the RBI, Maharashtra accounted for the highest share (22.6 per cent) in terms of total cost of projects sanctioned by banks/ FIs in 2017-18 followed by Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu, Rajasthan and Chhattisgarh. Gujarat recorded a fall in its share from the previous year. The share of ‘multi-state’ projects has declined in the recent period, probably reflecting the bottlenecks in obtaining clearances from multiple authorities. “Altogether, 833 companies made investment plans during 2017-18, aggregating Rs 199,100 crore as against 916 companies with investment intentions totalling Rs 202,800 crore in 2016-17,” the RBI said.

Industry-wise, chemical and chemical products accounted for 11 per cent of the total cost of projects in 2017-18, a significant rise over its quinquennial average (during 2012-13 to 2016-17) of 1.7 per cent. Share of the construction sector decreased to 5.1 per cent in 2017-18 from 12 per cent in 2016-17. Within the infrastructure sector, power continued to dominate, although its share dipped from 2016-17 (45.4 per cent) and quinquennial average (43.8 per cent) levels.

Investment in new projects occupied the largest share (89.3 per cent) in the total cost of projects sanctioned by banks and FIs. Expansion and modernisation constituted 9.2 per cent of the total project cost. Phasing profile of capex of projects sanctioned by banks/FIs indicate that around 38 per cent (Rs 65,000 crore) of the total proposed expenditure would be spent in 2017-18, 24 per cent (Rs 41,900 crore) in 2018-19 and 21 per cent (Rs 36,800 crore) in the year beyond.