Note ban hits new investment in quarter 3: CMIE

This Dec quarter was the worst among those in 10 yrs, on the number of new investment proposals

The December quarter, now known for the world’s biggest demonetisation action, has also taken a substantial toll on the Indian economy, says the Centre for Monitoring Indian Economy (CMIE), a non-government think tank.  

Its data, said CMIE, showed new investment proposals worth Rs 1.25 lakh crore in the quarter; the average on this count for the earlier nine quarters of the Narendra Modi government had been Rs 2.36 lakh crore. In fact, this December quarter was the worst among those in 10 years, on the number of new investment proposals, it said. Initial indications were also seen in the Purchasing Managers Index (PMI), a measure compiled on the basis of monthly surveys sent to a sample of purchasing managers at companies. ABSIS OF  MI released today The Nikkei/Markit Manufacturing PMI for December was 49.6, from November’s 52.3, its first reading below the 50-mark that separates growth from contraction since December 2015. It was also the biggest month-on-month decline since November 2008, just after the collapse of Lehman Brothers triggered a financial crisis and brought on a global recession.

Mahesh Vyas, managing director at CMIE, said: “The investment climate has been weak for some time”. Further, “demonetisation has had an adverse impact on the announcement of new investment proposals during the quarter. I expect this adverse impact to continue well into 2017.”

Adding: “Consumption demand has been squeezed by demonetisation and capacity utilisation was already very low. Consumption expenditure can be repaired only after liquidity and, more important, confidence in liquidity is fully restored. This will take much time. Investments can pick up only after consumption expenditure picks up to cover the ground lost because of demonetisation and then cover the gap in capacity utilisation. All this is unlikely to happen within 2017.”

CMIE

It appears that till the impact and the government’s follow-up measures are known, industry is unprepared to plan new investments. The eighth edition of Vibrant Gujarat Global Summit in Gandhinagar on January 10-13 would be a test of how big companies and global leaders see the growth potential.  Agreeing that consumption had slowed, D K Joshi, chief economist at ratings agency CRISIL, said: “Demonetisation has delayed investment recovery. Projects under implementation could get completed but new investments will only come when there are signs of consumption improving. CRISIL has revised downwards its GDP growth forecast for FY17 from 7.9 per cent earlier to 6.9 per cent after demonetisation. Recovery depends upon how quickly things are normalised in the coming quarters.”

According to CMIE data, 227 investment proposals worth Rs 81,800 crore had been announced during the December quarter till November 8, when demonetisation was announced. Another 177 investment proposals, worth Rs 43,700 crore, were made between November 9 and December 31 (one should also note that we care comparing a 39-day prior period with a leter one of 53 days).

This number of 404 investment proposals were, as mentioned earlier, the lowest in a December quarter for 10 years. 

Implementation of projects worth Rs 77,700 crore was stalled in the December quarter, according to CMIE, majorly due to lack of government clearances, beside an adverse business environment.