New private investment plans fall to lowest level in 20 years in the first quarter

Private capital investment got off to an unusually weak start this fiscal year, with domestic new investment plans falling to a 20-year low in the April-June quarter and companies announcing new spending of just 44,300 crore rupees.

The first quarter of 2023-24 recorded new investment announcements of around Rs 7.9 lakh crore, followed by expenditure of Rs 12.35 lakh crore announced in the previous January-March quarter of 2024. Overall, last year saw investment announcements of Rs 2.71 lakh crore, the second highest in the last decade.

The subdued investment levels in Q1 2024-25 can partly be explained by investors adopting a wait-and-see approach ahead of the Indian Lok Sabha elections, but the figures are much lower compared to the same quarters during the last two general elections in 2014 and 2019. New investment plans stood at Rs 2.9 lakh crore in Q1 2014-15, compared to Rs 2.1 lakh crore in Q1 2019-20.

“The economy is growing steadily, so the only reason for the weak investment plans last quarter could be that the industry was in a wait-and-see mode,” said Madan Sabnavis, chief economist at Bank of Baroda, adding that he expects investments to pick up in the coming quarters.

While the April-June quarter tends to see fewer investment announcements, this year has been exceptionally low, the bank’s economic research division, citing data from the Centre for Monitoring Indian Economy (CMIE), said in a report, adding that such a trend was not seen during previous election periods.Another factor for the slowdown could be that the past two years of heavy investment announcements are not yet over.

“Considering that the Budget is due to be announced around July-end, it remains to be seen whether there will be a significant recovery in the second quarter. A good monsoon and stable demand during the festival season that runs from end-August through December is likely to see investments grow at a faster pace,” the Bank of Baroda report concluded.

Data on corporate bond issuance and bank credit flows for the first quarter seem to confirm the trend of slowing investment plans, the report noted. Corporate bond issuance fell sharply to Rs 1.73 trillion in the first quarter of this year from Rs 2.86 trillion in the first quarter of 2023-24, more than three-quarters of which was raised by financial services companies. Bank credit increments between April 1 and June 14 stood at Rs 2.78 trillion against Rs 3.78 trillion last year, with growth slowing to 1.7 percent from 2.5 percent last year.

Of the Rs 44,000 crore-odd investments announced in the first quarter, spending on manufacturing accounted for 46.4%, followed almost equally by power and services.

“Interestingly, between June 2023 and June 2024, investment announcements fell by Rs 7.4 trillion, of which the transport services sector saw the largest decline of 61 percent,” the report said, linking this to the aviation industry’s new aircraft purchase plans announced last year.

The bank’s economists noted that this pattern is likely to be seen in the coming quarters as well, as these plans are unlikely to recover until earlier orders are fully implemented. “Of the decline in orders of about Rs 1.5 trillion, a further 20 per cent is due to the power sector. Until now, most of the additions have been in the renewable energy space, and a slowdown is expected here too,” the report estimated.