According to the Central Statistics Office, the investment ratio (GFCF as per cent of GDP, at current prices) fell to 25.5 per cent in March 2017. It was 28.5 per cent in March 2016 and 27 per cent in December 2016. The fall in March 2017 is therefore, quite sharp.
The investment ratio fell very sharply in fiscal 2016-17 as a whole - to 27.1 per cent from 29.3 per cent in 2015-16. A similar 2.1 percentage point fall had happened in 2013-14. This was a stressful year. There was grief over policy paralysis and an economy in disarray. But, there was also hope of a change. Expectations were high. There was an anticipation of a robust turnaround following a new government that was perceived to be far more decisive and business-oriented.
Professional forecasters polled by the RBI in June 2014 had expected a 170 basis points jump in the investment ratio. The investment ratio in 2013-14 was 28.3 per cent according to the CSO’s estimates released in May 2014 (based on the old 2004-05 series). Professional forecasters expected this to rise up to 30 per cent in 2014-15 as per RBI’s estimates released in June 2014.
Three years later, the investment ratio has fallen, not risen as expected. And more importantly, expectations have fallen as well.
Professional forecasters expect the investment ratio to rise by only 90 basis points now. According to the CSO’s latest estimates, the investment ratio was 27.12 per cent in 2016-17. And, according to the RBI’s 46th Round of the Survey of Professional Forecasters on Macroeconomic Indicators released on June 7, 2017, the median of the projected investment ratio for 2017-18 is 28 per cent, implying the 90 basis points recovery.
One-fourth of the professional forecasters believe that the investment ratio would be 27 per cent or less.
So, between 2013-14 and 2016-17, we have seen the investment ratio fall by a substantial 418 basis points. And, even on this much lower base of the investment ratio, expectations of an improvement in the investment ratio have fallen to nearly half the expectations earlier.
This reduced optimism inferred from data provided by the CSO and RBI is borne out by the data we see in CapEx.
New investment proposals worth Rs.387 billion were captured during May 2017 in the CapEx database. This is much better than the Rs.276 billion worth of new investment projects seen in April. But, these numbers are dismally low compared to the recent past.
At this rate it is very likely that the first quarter of the current fiscal would go down as the one with the lowest new investment proposals being made.
The average monthly new investment proposals seen during the past 11 quarters is Rs.764 billion. This is the period when the current government has clearly been in power. It covers the period from July 2014 to March 2017. It does not include the April-June 2014 quarter when new investment proposals had dropped to just Rs.277 billion per month. This was the quarter of the 2014 national elections. Understandably, decision-making had almost frozen around this time. And, this shows in the low new investment proposals witnessed in the CapEx database.
The average new investment proposals during April-May 2017 was Rs.332 billion. This is less than half the average of Rs.764 billion seen in the tenure of the current government. It is also the lowest monthly average since July 2014.
Low new investment proposals during the current quarter are in spite of the effort made by the government to shore them up.
The India Integrated Transport & Logistics Summit, 2017 held in early May brought in new proposals worth Rs.170 billion. Almost all of this is by government agencies. It is likely that these would take a long time to reach completion. Many may not even progress beyond the announcement. Experience tells us that such events are often a big spectacle but, they bring in very little new investments.
But, projects associated with this event account for a quarter of the total new proposals seen during the two months of April and May.
Another 12 per cent of the total new investment proposals in these two months is on account of the purchase of 50 ATR aircraft by Indigo. This is an increase in investments to create additional capacity but, it is a mere purchase. This does not lead to any significant increase in employment.
This sharp fall in new investment proposals by enterprise, the fall in the investment ratio seen in CSO’s estimates and the tempering of expectations of professional forecasters indicate that a revival in investments is still a distant dream.