Government project announcements, investment at new lows, slow completion rates
The Parliamentary Standing Committee on Commerce has noted that a huge shortfall in the budgetary allocation of over Rs 1,900 crore by the finance ministry to the industries department
Government announcements for the construction of new roads, railways and other capital projects (capex) may have reached a low, according to figures for the December quarter.
According to data from project tracker Center for Monitoring Indian Economy (CMIE), it stood at Rs 26,987 crore in the three months ended December. The data, which covers central and state government projects, is subject to revision as additional information comes in. But the quarter-end number is the lowest in data going back to March 2009.
It was unclear how many positive subsequent revisions might yield. The previous quarter had registered Rs 70,081 crore, also close to the record low of Rs 62,369 crore for December 2020 during the early months of the Covid-19 pandemic. The December 2023 figure as it stands now marks an 81 percent year-on-year (year-on-year) decline in the number of new government projects. New private sector projects also show a similar decline of 77 percent year-on-year to Rs 1.9 trillion in December as per the latest data available. Completion rates are also down 30 to 50 percent.
The government's need to cut spending is likely to result in a slowdown in capital investment relative to gross domestic product (GDP), an October 2023 report by global financial services firm Goldman Sachs had noted.
“With subsidies already close to pre-pandemic lows, it is likely that a reduction in public investment (as a share of GDP) will have to share the burden of fiscal consolidation, alongside a reduction in other current expenditure, and probably some improvement in government spending. tax revenue. In other words, the growth in public investment seen in recent years cannot, in our view, be sustained in the future,” said the report authored by analysts Santanu Sengupta, Arjun Varma and Andrew Tilton.
Private sector companies could fill this gap this decade given their low debt levels, the report said. They have more room to borrow and invest in new factories and other projects.
Private companies invest in setting up new factories when existing capacity is almost fully utilized. Capacity utilization in India has improved since the pandemic and is close to 70-75 percent, according to the Reserve Bank of India's June 2023 Order Books, Inventories and Capacity Utilization Survey (OBICUS). The data is released with a delay. and the last was released in October.
“At an aggregate level, capacity utilization (CU) in the manufacturing sector showed a seasonal decline to 73.6 percent in Q1:2023-24, compared to 76.3 percent in the previous quarter… The seasonally adjusted CU for Q1FY24 improved by 130 basis points ( basis points) compared to the previous quarter's level and amounted to 75.4 percent,” the report said.
It is often said that private sector investment is slowing ahead of the May general election. But analysts expect capital expenditures to continue in the longer term.
The victory of the Bharatiya Janata Party (BJP) in recently held three state elections is expected to be a sign of continuity in government, according to a December 4 India Strategy report from global financial services firm Jefferies, authored by equity analysts Mahesh Nandurkar , Abhinav Sinha and equity partner Nishant. Poddar.
“The recent performance of the BJP has far exceeded market expectations and further reinforces consensus expectations of a Modi victory in the 2024 national elections, with a higher chance of over 300 seats for the BJP. The chances of the BJP not retaining power now seem quite low; But if that were to happen, we would be buyers of the post-election market correction as India's investment cycle would continue,” the report said.
First print: January 1, 2024 | 7:43 PM IST