March quarter sees 53.6% surge in new projects at Rs 5.1 trn: CMIE data

Their value is higher than it was in December, as well as in the same quarter last year

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Indian Economy | CMIE data

The value of new projects which came up in the three months ended March was 53.6 per cent more than was seen in a similar period ending December 2021.

At Rs 5.1 trillion, it was also more than twice the Rs 2.45 trillion seen during the three months ending March 2021, showed data from project tracker Centre for Monitoring Indian Economy (CMIE). The higher new project numbers come around the time of elections in the five states of Uttar Pradesh, Manipur, Uttarakhand, Punjab and Goa which concluded in March. Completion and stalling rates haven’t kept up.

New projects can cover companies setting up new factories or governments building roads. All such investments had taken a hit because of the Covid-19 pandemic. The last few quarters had shown a rising trend in new projects (see chart 1).

The central government has also been pushing for more public investments with announcements of increased allocations in the union budget. Analysts are closely watching the impact on the overall investment cycle.

The Reserve Bank of India’s February monetary policy committee meeting minutes mentioned that an uptrend in capex by all players is not a given, according to remarks by RBI executive director Mridul K. Saggar. The monetary policy committee decides on interest rates which affects growth and inflation.

“While the capex push in the latest budget will support growth, monetary policy still has a complementary role to play. Uncertainty remains on account of whether…(states and public sector entities)…will keep capex high this year and whether execution will remain on track,” he said.

“The budget has reduced deficits only marginally but improved the composition of government spending, which will lower future inflation. Expenditure commitments have been reasonably met, but the proposed rise in capex will take some time to stimulate demand further, even though some construction activities create jobs with little delay,” noted fellow MPC member Ashima Goyal, emeritus professor, Indira Gandhi Institute of Development Research.

The value of completed projects is lower than the previous quarter as well as the same period last year. The value of stalled projects has seen an increase as well (see chart 2).

Private players like companies are less likely to invest in setting up new factories to increase production capacity when existing capacity is not being fully utilised.

The RBI’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the three months ending September 2021 was released in February. It noted that there has been some recovery in capacity utilisation.

“At the aggregate level, capacity utilisation (CU) for the manufacturing sector recovered to 68.3 per cent in Q2:2021-22 after waning of the second wave of Covid-19 pandemic in the country, which had caused plummeting of CU to 60.0 per cent in the previous quarter,” it said.

The latest number is still lower than the 68.6 per cent level seen in December 2019 before India’s first Covid-19 case was detected in the subsequent month.

Rating agency Crisil noted in a recent analysis that the Production Linked Incentive (PLI) scheme will lead to a potential capital expenditure of Rs 2.5-3 trillion. This will account for 13-15 per cent of average annual investment spending in key sectors over the next 3-4 years, it said.

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