Core sector firms' order book shrinks

In one of the first signs of slowing construction activity, the country's infrastructure and capital goods companies have seen almost a 25 per cent drop in orders for the fourth quarter of 2006-07, over the corresponding year-ago quarter, and a sharp fall from the trailing quarter growth of 81 per cent.

In January-March 2006, these companies' order book position grew 50 per cent over the year-ago quarter, according to data culled from notices to the Bombay Stock Exchange.

Overall, however, thanks to a deluge of orders in the first three quarters of this financial year, when the order book grew by 64.5, 28.4 and 81.7 per cent, respectively, the current financial year will still end for them with 27 per cent growth to Rs 70,455 crore.

On face of it, the lower value of orders in this quarter can be taken to be a portent of a slowdown in construction activity, evidently a result of companies' reluctance to incur capital expenditure.

However, a senior economist, who requested anonymity, said the numbers needed to be interpreted carefully. "It is not an indicator of which we have any experience or historical record. This could be a one-off thing."

However, he conceded, "The fact is that this has happened and one obvious interpretation can be that construction is slowing down."

To a large extent, the fewer orders can be attributed to low spending by Union and state governments, which declined by 40 and 26 per cent, respectively.

Private companies seem to have put their capital expenditure plans on hold as orders placed by them, worth Rs 1,446 crore, are only about half the value of the orders they placed in the fourth quarter of 2005-06.

Interestingly, while domestic companies have been reluctant, orders from overseas have continued to flow. Overseas orders for infrastructure development have increased by 46 per cent to Rs 4,719 crore.

Construction companies, mainly those involved in turnkey projects, have been significantly hit by the slowdown. The inflow of orders to these firms has dropped over 60 per cent to Rs 4,725 crore. Engineering firms reported a 10 per cent fall in order flow to Rs 4,278 crore.