Don’t miss the latest developments in business and finance.
Home / Economy / News / Election impact: New projects down 85% YoY in June on Capex slowdown
Election impact: New projects down 85% YoY in June on Capex slowdown
CMIE data puts value of new projects at Rs 43,000 cr, compared with Rs 3.45 trillion a year ago; completed projects down 60% to Rs 53,000 cr from Rs 1.33 trillion in June 2018
Capital expenditure slowed in the June quarter, according to data released by the Centre for Monitoring Indian Economy (CMIE).
New projects were down over 85 per cent compared to June last year, shows data from CMIE, which tracks projects and their implementation. The value of new projects in June 2018 was Rs 3.45 trillion. This fell to Rs 43,000 crore in the June quarter.
The value of completed projects was down 60 per cent to Rs 53,000 crore from Rs 1.33 trillion in the same period last year. Stalled projects were down by more than a third from Rs 37,000 crore to Rs 11,000 crore.
Analysts associate elections with the slowdown in investment activity, as companies prefer to wait for the formation of the new government before taking major investment decisions. Election results were declared on May 23.
New orders showed a similar trend ahead of elections.
“New orders received in Q3FY19 were lower, year-on-year (YoY) and quarter-on-quarter (QoQ)...with growth moderating for the second successive quarter,” according to the Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS); which appears with a lag.
A report from brokerage house Prabhudas Lilladher noted that order flow had been affected due to general elections along expected lines, though future commentary was positive.
“The Government continues to drive the capex. The private sector is witnessing some uptick in brownfield capex and small size/base business orders. However, full-fledged recovery may take another few quarters,” said the June 2019 report entitled ‘Uncertainty over, challenges ahead’, authored by a team including head of research Amnish Aggarwal.
Capacity utilisation has been rising. It rose to 75.9 per cent in the December 2018 quarter, showed RBI’s Obicus survey. Companies have less incentive to make new investments (for example, setting up a new factory), when existing capacity is not fully utilised.
Engineering major Larsen and Toubro, in its latest annual report, too noted that the investment climate is improving. The public sector has been more willing to undertake capital expenditure. Spends were seen on water projects and those involving roads, railways and metro rail networks. It noted that the private sector has been tentative in increasing spends.
“Encouragingly, the private sector also seems to have overcome its bashfulness, and begun to show signs of revival in road concessions, airports, healthcare, metals, mining and cement capacity augmentation,” said group chairman A M Naik’s statement in the annual report.
Financial services firm Morgan Stanley India Company’s June 27 India – Economics and Strategy report said that capital spends are expected to be stable in relation to economic growth as measured by gross domestic product (GDP).
“We estimate capital spending to be steady as a percentage of GDP on budget. Further, we expect the government to continue to use the off-budget financing route to fund public infrastructure capex,” said the note authored by a team including economists Upasana Chachra and Avni Jain; and equity strategists Ridham Desai and Sheela Rathi.
To read the full story, Subscribe Now at just Rs 249 a month