With the budget just around the corner and everyone focusing on GDP growth rate, which, at 6.8% for F.Y. 19 was the slowest in five years; an even more disturbing macro economic indicator has made its way into the mix. According to data collected by the Centre for Monitoring Indian Economy (CMIE) investment in new projects hit a 15 year low in the quarter ending June 2019.
New projects worth ₹ 43,400 crore were announced by Indian companies across both private and public sectors in the June 2019 quarter, which is roughly 81% lower than what was announced in the March 2019 quarter, which stood at ₹ 2,28,000 crore.
Not only is the amount of investment or new project announcements the lowest in the June 2019 quarter, but it is also the only quarter among all nine depicted above where the amount of fresh investments have not surpassed the ₹ 1 trillion mark, in fact it is less than half of 1 trillion. While these figures released by CMIE are only provisional and could be subject to revision, it paints a bleak picture of what was promised to us by the government and what the ground realities are.
This sharp decrease in investment could be partly on account of uncertainty due to general elections in the previous quarter, and the transition to the new regime.
This investment slump is broad based, engulfing all sectors such as construction & real estate, services, power generation, metals & mining and manufacture.
Investment in services and manufacturing sectors were the worst hit falling by 94% and 75% respectively compared with the previous March quarter.
Another way of looking at the same problem would be from the angle of projects stalled. And this number is the highest since the CMIE began compiling data in 1995. Weighing in at astronomical, and equally disturbing figure of ₹ 13 trillion, the June 2019 quarter was the culprit of the highest ever stalled projects. According to the data, private sector projects are being stalled at unprecedented rates and have reached an all time high. Since the June 2018 quarter, projects stalled have been progressively increasing, and have finally peaked out in the June 2019 quarter.
The primary reason for this is the lack of funds because of the recent liquidity crunch and the fact that banks, being under capitalised and plagued by NPAs are skeptical to lend money to finance projects. Other reasons include delays in land acquisition, shortage of fuel and raw materials, lacklustre investor sentiment and a slowdown in global economic activity.
Apart from the lacklustre investment data, GDP growth rate is also fast becoming a worry. GDP growth declined to 5.8% in the fourth quarter of F.Y. 19, which drove down the full year GDP growth rate to 6.8%, the lowest since F.Y. 14. The Reserve Bank cut interest rates for a third time in a row last month to aid growth rates. Now, however, the economy not only needs RBI assistance, but also budgetary support to boost investor sentiment and get the economy back on track, and Finance Minister Niramala Sitharaman has a tough job on her hands if she wants assist Prime Minister Narendra Modi in reinforcing his promise that India will be a $ 5 Trillion economy by 2024.