Investment picture in FY23 was fuzzy, with most of the new project announcements being in the services sector (transport services) while manufacturing showed only modest pickup, according to Bank of Baroda’s economic research report.
Major capital creating sectors such as machinery, metals showed considerable drop in announcements in FY23 compared to FY22, per the report, which is based on CMIE capex data.
“Apart from new announcements, even revival rate of projects have dropped to lower levels. The gestation period of projects have also increased, reflective of increased economic cost of capital and also delayed completion of projects,” said Dipanwita Mazumdar, Economist, BoB.
CMIE data reflected some buoyancy on the investment front as new project announcements picked up considerably, reaching an all-time high of ₹29 lakh crore in FY23 compared to ₹22 lakh crore in FY22.
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Basically, this indicator expresses the intentions of business enterprises; albeit all the announcement may not necessarily translate into actual investment, it added.
Services sector pickup
“The major pickup is attributable to services sector (other than financial), where new announcements picked up to ₹10.3 lakh crore in FY23 compared to ₹5.2 lakh crore in FY22.
“Within services, the sharp increase has happened for transportation sector where new announcements rose to ₹8.8 lakh crore in FY23 compared to ₹3.9 lakh crore in FY22. The announcements made by the airlines industry were major contributors here,” Mazumdar said.
Manufacturing only modest
Manufacturing and electricity sector also witnessed improvements. However, within manufacturing, the increase is not broad based, the report said.
“Except chemical and products (where new announcements picked up to Rs 7.3 lakh crore in FY23 from Rs 3 lakh crore in FY22), all sub sectors noted drop in announcements. In fact, for capital creating segments such as machinery and metals and products, considerable drop in announcements have been noticed,” the BoB Economist said.
Funding side: story mixed
Mazumdar observed that on the funding side the story is mixed. Bank credit, the primary source of funding, shows that credit offtake to industry has been far below the normal pace of credit accretion in FYTD (financial year to date) 23.
“Notably, 8 out of the 19 sub-industries which are monitored by RBI, showed credit growth even below 4.3 per cent, which is industry level pace of credit accretion in FYTD23 (April-February),” the BoB Economist said.
She noted that funding through the corporate debt market has also remained skewed.
“Funds raised from primary market again remained inclined towards services sector, with manufacturing share dropping sharply in the equity segment.
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“Funding through the ECB (external commercial borrowing) route has been impacted due to higher capital cost in a rising interest rate regime,” Mazumdar said.
But the purpose wise proposals show some degree of respite as here the share of new projects and import of capital goods have increased, which indicated some improved sentiments with regard to investment climate.
Two pain points
The BoB Economist observed that the revival rate of projects have fallen to an abysmally low level in FY23.
Rate of revival of “implementation stalled projects” (these are projects that have gone beyond the stage of a mere announcement and stalled post implementation) is down to 4.1 per cent in FY23 against 13.9 per cent and 76.4 per cent in FY22 and FY21, respectively, per the report.
Rate of gestation of projects has also increased in FY23, which is reflective of the fact that projects are getting delayed, Mazumdar said.
Rate of gestation of projects rose to 19.4 per cent in FY23, from 15 per cent in FY22.