Private Investment Plans Slump to 20-Year Low in Q1: A Slow Start to the Financial Year

The first quarter of the financial year 2024-25 has witnessed a sluggish start in terms of private investment plans, with a significant decline in new investment announcements. According to recent data, corporates have announced fresh outlays worth ₹44,300 crore, which is a 20-year low. This is a stark contrast to the previous year, where new investment plans had reached nearly ₹7.9 lakh crore in the same quarter.

The first quarter of 2023-24 had seen a massive surge in investment announcements, with outlays worth ₹12.35 lakh crore. Last year had seen investment announcements worth ₹27.1 lakh crore, the second highest in 10 years. However, this year’s Q1 has seen a significant slowdown, with investors adopting a wait-and-watch approach amid the Lok Sabha elections. This trend is far lower than the same quarter over the past two general elections held in 2014 and 2019, where new investment plans had reached ₹2.9 lakh crore and ₹2.1 lakh crore, respectively.

Madan Sabnavis, chief economist at Bank of Baroda, attributes the sluggish investment plans to the industry’s wait-and-watch approach. He hopes that investments will pick up in the coming quarters. The bank’s economic research department notes that the April-June quarter tends to have lower investment announcements, but this year’s tally is exceptionally low. Another factor contributing to the slowdown could be the high investment announcements made in the last two years, which are yet to run their course.

The report also highlights the trend of slowing investment plans, citing data on corporate bond issuances and bank credit flows. Corporate bond issues have fallen sharply from ₹2.86 lakh crore to ₹1.73 lakh crore, with over three-quarters raised by financial services players. Incremental bank credit has also slowed down, growing at 1.7% compared to 2.5% last year.

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

The report notes that this pattern is likely to be observed in the coming quarters as well, as these plans are unlikely to be restored until the earlier orders are executed fully. Another 20% of the decline, amounting to around ₹1.5 lakh crore, was in the electricity sector. In the past, most additions have been in the renewable space, and a slowdown may be expected here as well.

Overall, the slow start to private investment plans in Q1 is a cause for concern, and it remains to be seen whether there will be a pick-up in the coming quarters. The Budget announcement in July and a good monsoon season could potentially boost investment, but only time will tell.

Historical Context:

The article mentions the Lok Sabha elections, which are a significant event in Indian politics. The Lok Sabha is the lower house of the Indian Parliament, and elections are held every five years to elect its members. The article also mentions the previous general elections held in 2014 and 2019, which had a significant impact on investment plans.

The article also provides context on the Indian economy, mentioning the high investment announcements made in the last two years, which are yet to run their course. This suggests that the economy has been growing rapidly in recent years, and investors may be waiting to see how the current situation unfolds before making new investments.

Summary in Bullet Points:

• Private investment plans in Q1 2024-25 have reached a 20-year low, with new investment announcements worth ₹44,300 crore. • This is a significant decline from the previous year, where new investment plans had reached nearly ₹7.9 lakh crore in the same quarter. • The first quarter of 2023-24 had seen a massive surge in investment announcements, with outlays worth ₹12.35 lakh crore. • Last year had seen investment announcements worth ₹27.1 lakh crore, the second highest in 10 years. • The industry is adopting a wait-and-watch approach amid the Lok Sabha elections, contributing to the slowdown. • Manufacturing outlays dominated with a 46.4% share, followed closely by electricity and services. • The value of investment announcements has fallen by ₹7.4 lakh crore over the period between June 2023 and June 2024, with the transport services sector accounting for 61% of this decline. • The report notes that this pattern is likely to be observed in the coming quarters as well, as these plans are unlikely to be restored until the earlier orders are executed fully. • The slow start to private investment plans in Q1 is a cause for concern, and it remains to be seen whether there will be a pick-up in the coming quarters. • The Budget announcement in July and a good monsoon season could potentially boost investment, but only time will tell.