Private Investment Plans Plummet to 20-Year Low in Q1

In a stark contrast to the usual trend, new private investment plans in the country have slumped to a 20-year low in the first quarter of the current financial year. According to data from the Centre for Monitoring Indian Economy (CMIE), corporates announced fresh outlays worth a mere ₹44,300 crore in the April to June quarter, a significant drop from the ₹7.9 lakh crore recorded in the same period last year.

The sluggish start to private capex can be attributed to various factors, including the wait-and-watch approach adopted by investors amid the Lok Sabha elections. However, this dip is far more pronounced than in previous general elections. In 2014-15, new investment plans stood at ₹2.9 lakh crore, while in 2019-20, they totaled ₹2.1 lakh crore.

Madan Sabnavis, chief economist at Bank of Baroda, attributed the slowdown to the industry’s cautious approach, hoping that investments will pick up in the coming quarters. The bank’s economic research department noted that the April-June quarter typically sees lower investment announcements, but this year’s figures are exceptionally low. The report also pointed out that the last two years have seen high investment announcements that are yet to be fully executed.

Data on corporate bond issuances and bank credit flows corroborate the trend of slowing investment plans. Corporate bond issues fell sharply from ₹2.86 lakh crore in the first quarter of 2023-24 to ₹1.73 lakh crore in Q1 this year, with financial services players accounting for over three-quarters of the total. Incremental bank credit growth also slowed down, slipping to 1.7% from 2.5% last year.

Manufacturing outlays dominated the ₹44,000-odd crore investments announced in Q1, accounting for 46.4% of the total, followed closely by electricity and services. Interestingly, the value of investment announcements fell by ₹7.4 lakh crore over the period between June 2023 and June 2024, with the transport services sector accounting for a significant 61% of the decline. This is largely due to the airline industry’s plans to buy new aircraft announced last year.

The report also noted that another 20% of the decline, amounting to around ₹1.5 lakh crore, was in the electricity sector. Historically, most additions in this sector have been in the renewable space, and a slowdown may be expected. The bank’s economists believe that this pattern will continue in the coming quarters, with these plans unlikely to be restored until earlier orders are fully executed.

The report concluded that a good monsoon and steady demand during the festival season, which starts from the end of August and lasts till December, could lead to an increase in investment at a faster pace. However, it remains to be seen whether there will be a major pick-up in the second quarter, considering that the Budget will be announced only towards the end of July.

Historical Context:

The article mentions the Lok Sabha elections, which refers to the general elections held in India in 2014 and 2019. The Lok Sabha is the lower house of the Indian Parliament, and the elections are held every five years to elect its members. The article also mentions the financial year, which in India typically runs from April to March. The Centre for Monitoring Indian Economy (CMIE) is a prominent economic research organization in India that tracks various economic indicators, including private investment plans.

Summary in Bullet Points:

• Private investment plans in India have slumped to a 20-year low in the first quarter of the current financial year, with corporates announcing fresh outlays worth ₹44,300 crore. • This is a significant drop from the ₹7.9 lakh crore recorded in the same period last year and lower than the ₹2.9 lakh crore in 2014-15 and ₹2.1 lakh crore in 2019-20. • The slowdown in private capex can be attributed to a wait-and-watch approach adopted by investors amid the Lok Sabha elections. • Manufacturing outlays dominated the investments announced in Q1, accounting for 46.4% of the total, followed closely by electricity and services. • The value of investment announcements fell by ₹7.4 lakh crore over the period between June 2023 and June 2024, with the transport services sector accounting for a significant 61% of the decline. • The electricity sector also saw a decline of around ₹1.5 lakh crore, largely due to a slowdown in the renewable energy space. • Economists believe that a good monsoon and steady demand during the festival season could lead to an increase in investment at a faster pace, but it remains to be seen whether there will be a major pick-up in the second quarter. • The Budget will be announced towards the end of July, which may impact investment plans in the coming quarters. • Corporate bond issues fell sharply from ₹2.86 lakh crore in the first quarter of 2023-24 to ₹1.73 lakh crore in Q1 this year, with financial services players accounting for over three-quarters of the total. • Incremental bank credit growth also slowed down, slipping to 1.7% from 2.5% last year.