Rediff.com  » Business » As businesses seek political certainty, there's sharp dip in capex

As businesses seek political certainty, there's sharp dip in capex

April 03, 2019 15:14 IST

The elections held in April-May 2019 will be an important determinant of future growth and investment.

Illustration: Uttam Ghosh/Rediff.com

There was a sharp 54.4 per cent year-on-year decline in the value of new projects in the last quarter before the commencement of the Lok Sabha election.

New projects worth Rs 1.99 trillion were announced in the March quarter against Rs 4.36 trillion during the same period last year, showed data from investment tracker Centre for Monitoring Indian Economy (CMIE). The data was released on Monday.

 

Experts, too, had apprehended that companies would likely put their investment plans on hold at least during the seven-phase general election, which is scheduled to kick off on April 11, or even in the first half of FY19.

“In H1 2019, we expect political uncertainty to compound these negative effects and arrest private investment as businesses seek political certainty before committing to new projects. The elections held in April-May 2019 will be an important determinant of future growth and investment,” Nomura Securities had stated in its Asia Economic Outlook report, which was released on December 10, 2018.

The report was authored by analysts Sonal Varma and Aurodeep Nandi.

The total value of new projects undertaken during FY19 was Rs 9.47 trillion, much lower than previous years, according to an earlier note from CMIE.

“New investment proposals are expected to decline sharply during the year ended March 2019.

"We expect the year to end with new investment worth less than Rs 10 trillion.

"This would be much lower than the Rs 11.3 trillion worth of new investment proposals seen in 2017-18 and it would also be the lowest since 2004-05, i.e. the lowest in 14 years,” CMIE managing director Mahesh Vyas had stated in a March 8 note.

The value of completed projects was up 11.3 per cent to Rs 1.87 trillion over March last year.

However, the value of revived projects was Rs 0.11 trillion, a dip of 59.3 per cent y-o-y.

Stalled projects saw a decline of 33.2 per cent to Rs 2.67 trillion.

Meanwhile, around a quarter of companies’ existing capacity is lying unused, according to the Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the quarter July-September 2018.

The survey appears with a lag but is a key indicator of capacity utilisation in the country.

“At the aggregate level, capacity utilisation (CU) rose to 74.8 per cent in Q2FY19, co-moving with the de-trended index of industrial production (IIP).

"Seasonally adjusted CU also increased by 0.4 percentage point to 75.3 per cent in Q2FY19,” it said.

Companies have limited incentive to invest when existing capacity is not fully utilised.

Private investment has also been going through a difficult time because of multiple reasons, including leverage and clearances, according to a Motilal Oswal Securities Capital Goods report.

“The decline in private capex can be attributed to to…weak end-market demand resulting in under-utilisation of capa­city,...high leverage with companies in sectors like steel, power, and infrastructure, which constrains new borrowings and resultant capex, and….delays in land acquisition and clearances,” said a March 25 report authored by research analysts Nilesh Bhaiya and Amit Shah.

Sachin P Mampatta & Joydeep Ghosh in Mumbai / New Delhi
Source: source
SHARE THIS STORY