The value of new investment projects in the first half of the current financial year has fallen to a 15-year low of ₹1.9 lakh crore, as per a latest analysis by Care Ratings.
Further, the analysis by economists of the rating agency revealed that there has been a sustained decline in new projects undertaken in the past five years, with the amount for such projects pegged at ₹11.9 lakh crore in FY19, the lowest in the past five years and also marks the fourth consecutive year of contraction. “The Indian economy [has been] going through challenging times in the current year so far, mainly on account of weak investment climate and consumption,” the report stated.
“The investment rate measured as the gross fixed capital formation (GFCF) as a percentage of GDP has declined consistently over the years and remained range-bound between 28% and 29% of GDP in the past 4 years. This has been a detrimental factor for the overall economic growth of the country,” it added.
Within the new investment segment, the government’s share in such investments declined from 56% in FY15 to 36% in FY19, while that of the private sector rose from 44% to 64% in the same period.
In the first half of FY20, new investments by the private sector contracted by 77%, compared with a 23% growth in the first six months of the previous financial year.
New investment projects were mainly seen in the manufacturing sector, even as services and electricity segments witnessed a decline in investments. Stalled or abandoned projects declined over the last five years, though such government-owned projects increased.
Two primary reasons for the stalling of the projects have been cited; lack of non-environmental clearances along with lack of funds, the report stated, adding that the “stressed liquidity in the banking system, especially in the NBFC segment, and rising NPAs leading to curtailed lending activity by the banks, limited the availability of funds for the projects.”
In the first half of FY20, stalled projects aggregated to ₹29,214 crore, 66% lower than the ₹86,623 crore in the corresponding period last year.
The analysis concluded that the overall investment climate, as denoted by new projects undertaken, did indicate a slowdown, though the scenario around stalled projects had shown some improvement.
“Funding, however, will remain a challenge for some more time until the problems confronting the banking and NBFC sectors are addressed,” it said.