India Inc puts money where future is, cycle of investment begins

The pick-up is evident from a 50 per cent rise in project announcements in the six-month period between February and July, 2004. According to CMIE data, the total size of the planned investments during this period has gone up by 36.32 per cent to Rs 9,43,196 crore.

Says a senior investment analyst at a leading international brokerage and investment banking firm: ‘‘Over the next six months, the acceleration should happen. Traditional industry, by and large, is moving to setting up more capacities. Our investment horizon is over the next 2-3 years.’’

Of course, there is a major caveat: implementation rate of investment proposals since liberalisation is a dismal 16 per cent. That said, most agree that the downturn in capital investment has bottomed out in 2003-04. Another indicator is that, in the last six months, the number of revived projects has overtaken shelved ones.

Saumitra Chaudhuri of ICRA Ltd feels the peak has not yet been reached. ‘‘Some firms postponed decisions because of the elections. Given the lag between project announcements and actual on-the-ground investments, things will really start picking up by the end of this year. The next two years are going to be busy ones with lots of primary investments,’’ he says.

Barring cement, where current capacity utilisation remains unmet, investment has been across sectors, from power, ports, petrochem to aluminium, steel, automobiles.

Says Hemant Kanoria, CEO of SREI Infrastructure, which finances infrastructure projects: ‘‘Though on-ground investments in infrastructure are still a bit slow, industry is increasing capacity utilisation.’’

In the first half of the current fiscal, IDBI has already sanctioned Rs 6,000 crore for new projects, compared to Rs 2,568 crore in April-September 2003. ‘‘Industry activity has started picking up and in the last month we have already cleared many projects,’’ says M Damodaran, chairman, IDBI.

The findings of the top revived projects is instructive. It clearly indicates that power projects are back with a bang, with five of the top ten revived projects in this sector. The other sectors where revival has taken place are ports and refinery expansion projects. The total investment size of the Top Ten revived projects alone comes to around Rs 50,000 crore.

The big-ticket new projects this year have come in sectors of aluminium, steel, petrochem and power. A total investment of over Rs 40,000 crore is constituted by the largest projects.

India’s investment rate has been growing at a dismal 4 per cent between 1990 and 2002. This is far below other emerging markets—China, for instance, has seen a compounded annual growth rate of 14 per cent over the same period and Vietnam 27 per cent.

The NK Singh report on FDI had said that India requires an investment rate of 32 per cent to achieve 8 per cent growth in GDP on a sustained basis.