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CapEx Tracking the Creation of New Capacities
From Intentions through Implementation and Completion.
Knowledge Base
02 Oct 2017 11:15 AM, Trends Mahesh Vyas

Fall in new investment proposals

Intentions to set up new productive capacities has reached a new low.

Projects worth Rs.845 billion were proposed during the quarter ended September 2017. This is the lowest level of intentions to invest seen in a quarter during the tenure of the Modi government.

In fact, the investment announcements in the September 2017 quarter are lower than the investments proposed even during the June 2014 quarter when investments had come to a halt for all practical purposes in the face of political uncertainty. There was much angst then, against the new land acquisition law and corruption. Even during those uncertain days, new investment proposals added up to Rs.871 billion. Adjusted for inflation that would be worth nearly a trillion rupees today. In comparison, the Rs.845 billion worth of new investments in the quarter ended September 2017, is clearly a low level.

It is likely that in the coming weeks new projects will be added as we get information of some more projects that were announced during the past three months. But, this is unlikely to fundamentally change the inference from the available information that new investment proposals have slowed down substantially.

CMIE’s CapEx database has been recording this slowdown over several quarters. After a brief resurgence in new investments during 2014-15, these have remained anemic during the last ten quarters. A few sudden increases seen during these ten quarters were quickly followed by declines. There was never really a revival of investments during the Modi government.

September 2017 also saw a fall in the revival of projects that were abandoned or shelved earlier.

Hopes of faster government clearances and a quick revival in the economy had led to a smart increase in the revival of projects during the second half of 2014. Revivals accounted for 14 per cent of all troubled projects during 2014-15. This was much higher than 6 per cent and 3 per cent revivals recorded in the preceding two years, respectively. The rate of revival was a respectable 13 per cent in 2015-16 and then it shot up to an all-time high of 25 per cent in 2016-17.

However, the rate of revival of projects has now fallen to less than 6 per cent in the first half of 2017-18.

As a result of this fall in both, new projects and revival of old troubled ones, the total accretion of new investment projects to the pipeline of projects has been lower than the projects that exit the pipeline.

During the quarter ended September 2017, Rs.986 billion worth of projects were either newly proposed or were revived. In comparison, Rs.3,312 billion worth of projects were either completed, abandoned, shelved or dropped for other reasons.

The fall in the flow of new investment proposals is concentrated in the private sector.

Private sector investment proposals fell to their lowest level in 15 quarters during the quarter ended September 2017. Comparison of investment values over time are always vitiated by the inflation of current values compared to past ones. Inflation makes current values unrealistically higher than they actually are compared to past values, particularly the distant past.

The count of investment projects provides a better metric. It is free of inflation problems and it is a better measure of investor enthusiasm. In this respect, the September 2017 quarter shows a sharp fall. Only 191 new investment project proposals were made by the private sector. This is the lowest level in over 13 years.

Government projects, in particular state government projects, dominate new proposals during the September 2017 quarter.

Of the Rs.845 billion worth of investments into new projects proposed during the quarter, the largest is the Rs.200 billion Taj International Airport Project, Phase II and III at Jewar in Greater Noida. Three new runways would be added and the project is reported to require 4,413 acres of land. The project is scheduled to be completed in 2032. However, even Phase I has not made much progress. Its scheduled completion is in 2023.

Nevertheless, the government of Uttar Pradesh accounts for 24 per cent of all new investment proposals during the quarter.

State governments account for 43.5 per cent of all new investment proposals made during the quarter ended September 2017. This is unusually high and is so because of the Jewar airport expansion project.

Prime Minister, Narendra Modi laid the foundation stone for a Bullet Train between Ahmadabad and Mumbai. This is not a new project as it was first announced in February 2009. However, its cost has increased from Rs.325 billion in 2009 to Rs.1,100 billion now.