Latest News | At Rs 5.18 Tln in FY21, Pvt Sector Investments Lowest Since FY05: Report

Mumbai, May 20 (PTI) Despite the recovery seen in the second half of FY21, private sector investments in new projects have hit a rock bottom at Rs 5.18 lakh crore, the lowest since FY05 when it was Rs 5.63 lakh crore, and given the second wave of the pandemic and the resultant disruptions, there is little likelihood of an improvement this fiscal, warns a report.

The numbers are stark as it comes ahead of the annual GDP numbers coming by the month-end, and shows that whatever little recovery the economy had was driven by government spending, shows an analysis of investment numbers by Care Ratings on Thursday.

Data on new total investment in projects show that it was only Rs 5.18 lakh crore in FY21, the lowest since FY05 when it was Rs 5.63 lakh crore. In FY05 it was low because since FY03, there was a rapid increase in investments and since then it always remained above Rs 10 lakh crore each year and in seven years it crossed even the Rs 20 lakh crore-mark, says Madan Sabnavis, the chief economist at the agency.

What is more worrying is that the gross fixed capital formation rate has been plunging continuously from 34.3 per cent in FY12 to 28.8 per cent in FY20 and is expected to go down further to 26.7 per cent in FY21, he warns.

Again, among all the new investment projects announced until FY17, government-run companies dominated with a share of 58 per cent but even this has been coming down since then it plunged to 32 per cent in FY21 from 49 per cent in FY20, shows the report.

Sabnavis attributes this to the huge surplus capacity in manufacturing built during the investment boom period, and secondly there was uncertainty on the funding aspects especially after the NPA bubble since FY12 and the resultant corrective measures that the RBI forced no banks through the asset quality review in FY16.

Also, the six-month moratorium announced last year following the first wave also played its role in keeping the money tap shut, says the report.

All this made banks hesitant to lend and corporates cleaning their balance sheets. This can be evidenced from the limited success of the LTRO operations of the RBI last fiscal where most of the borrowed money was repaid by banks much before the deadline, Sabnavis notes.

The report further warns that the ongoing lockdowns, began in April and extended to May will also extend to June for sure, and it does not look likely that there will be a significant recovery in investment in the first quarter.

The downward movement in FY21 has been due to exceptional conditions for sure, but for a revival to take place there will have to be an upsurge in demand, which also does not look likely.

The capacity utilization rate fell sharply in June 2020 to 47.3 per cent and since then recovered to 63.3 per cent and 66.6 per cent respectively in September and December 2020 quarters.

In FY20, power, transport services (airlines mainly) and construction and realty accounted for 72 per cent of total investments, while the top five industries accounted for nearly 85 per cent of the total. But in sharp contrast, these top five industries accounted only for 65 per cent of total investment intentions led by metals, electricity and chemicals in FY21.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)