India Inc continues to reach into its pocket to liberally plough cash into new projects. The sustained rise in corporate bottomlines in the last five quarters and the 8 per cent economic growth has prompted most firms to take up modernisation and expansion projects in a big way.According to CMIE data, the total cost of projects announced by various firms amounts to a whopping Rs 826,037 crore as of Sept. 2005, a rise of 74.34 per cent when compared to project proposals estimated to cost Rs 473,794 crore till September 2004.The rise in new announcements — 5,511 projects — in the last 12 months is steep, as corporates reported only a 38 per cent rise in new project announcements in the previous 12 months ended September 2004. Industry observers say the industry is witnessing an investment boom across all the sectors.‘‘The economy is growing, demand is rising. Besides, corporates have restructured their operations. They have cut costs. Many sectors like steel, cement, oil & gas have announced mega projects. At the current growth rate, the economy can sustain this expansion as sectors like infrastructure are witnessing a massive face-lift,’’ said D R Dogra, executive director, CARE.Almost all top companies have announced new projects in the last 12 months. Reliance has announced a Rs 25,000 crore plan to double the capacity of its Jamnagar refinery, making it the largest in the world. Tata Steel and Jindal have announced fresh investment in the steel sector. This is the second time — after the investment boom in the 1995-96 — that the economy is getting huge investments since the economic liberalisation started in 1991. ‘‘These investments in new projects will spur the growth in the economy in the coming years. New investments are across all sectors. from steel, plastics, sugar to garments. This time there is large number of large investments,’’ said Mahesh Vyas, executive director, CMIE.The steep rise in new project investments have now raised fears about a repeat of the mistakes made by companies in 1995-96. There was excess capacity build-up in many sectors like steel and power. Many projects kickstarted in 1995-96 were stalled and abandoned mid-way. ‘‘This time the project proposals are more realistic,’’ avers Vyas.Quite of few of the new investments are in the steel sector. Steel projects mooted by the Tatas, the Mittals and Jindals will see investments of Rs 1,20,000 crore in the sector. But observers say some of the investments in the steel sector are unlikely to materialise as there will be correction in the near future.‘‘This investment boom is not restricted to big corporates. Hundreds of small firms are also coming forward with expansion and modernisation proposals,’’ said a banking source. It’s reflected in the sharp rise in non-food credit of banks. ‘‘With the industry growing at a good rate, demand for credit will also remain high,’’ said M.V. Nair, CMD of Dena Bank.As many companies learnt a hard lesson from the previous investment cycle (1995-96), it’s highly unlikely that they will make the same mistakes again and end up as defaulters. A major chunk of the Rs 1,10,000 crore non-performing assets has come from stalled projects in the mid-90s. The boom in the stock markets and the sustained rise in the Sensex will help corporates in their fund-raising plans. The primary market (public offers) is already brimming with activity.
