Over-capacity, low demand in certain industries to blame.
There seems to be a moderation in the demand for money from banks and financial institutions to fund new projects and expansion.
While the number of projects seeking assistance from banks and FIs fell nearly 14 per cent, the amount involved rose marginally to Rs 2,84,371 crore at the end of March 2008 from Rs 2,83,440 crore in 2006-07. In 2005-06, the banks and FIs provided an estimated Rs 1,31,299 crore for 812 new projects.
Power projects, special economic zones and industrial, infotech and biotech parks drew large amounts of money from banks and FIs. Companies in the pharmaceutical, cement, transport and hotel businesses also sought more funds in 2007-08. But the demand from most other sectors fell, said an article in the latest RBI Bulletin.
Analysts said the capacity build-up in sectors such as chemicals and the sluggish demand for sugar and textiles were partly responsible for the decline in demand for money from banks.
According to information submitted by companies to banks and FIs, the capital expenditure envisaged in 2007-08 amounted to Rs 1,99,262 crore, which was 18.6 per cent higher than Rs 1,68,000 crore in the previous year. In 2006-07, the capex plans saw a jump of over 72 per cent.
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If the funds raised by companies through external commercial borrowings (Rs 33,068 crore) and domestic capital (Rs 5,361 crore) are considered, the total investment proposals in 2007-08 would be higher at Rs 3,22,800 crore. The comparable figures for 2006-07 are unavailable. But the funds are to be spent between 2005-06 and 2012-13.
The number of projects costing Rs 500 crore and more, that sought assistance from banks and FIs, rose marginally from 88 in 2006-07 to 98 in 2007-08. The number of projects with an envisaged investment of up to Rs 100 crore, however, fell.
In terms of state-wise sweepstakes, there was some good news for Maharashtra, which till two years ago was India’s hottest investment destination. Having slipped to the third position in 2006-07 – behind Gujarat and Andhra Pradesh – Maharashtra has come back to occupy the second spot. Gujarat is still at the top of the heap and by a long margin, with Chattisgarh being a new entrant to the league.
| HOW THEY STACK UP Industry-wise distribution of projects and their cost | ||||
| In Rs crore | 2006-07 | |||
2007-08
Amount
% share
Amount
% share
Among the other major states, Tamil Nadu saw its share decline to 5.6 per cent from 8.6 per cent in 2006-07, while Delhi and Haryana too lost some sheen.
The share of new projects — 508 in 2007-08, compared with 566 in the previous year — in the total envisaged spending remained virtually stagnant at 65.7 per cent, while funding for sought for modernisation and expansion of 368 projects.