Investment proposals expected to rise

by Mahesh Vyas

The quarter ended December 2021 was better placed than any since the pandemic to record a pick-up in investment intentions. First, of course, it is the farthest from the great economic shutdown of April-June 2020. Since then, many indicators have shown V-shaped recovery. Impact of the second wave was muted and the recovery again, by those indicators, was quick. If the economic trajectory since the meltdown was as impressive as a V-shaped recovery then it was, perhaps, logical to expect a pick-up in investment intentions. Several analysts from the financial markets were talking in terms of an investments pick-up along with the Chief Economic Advisor till recently. It was about time to talk the economy back into investments or support the expected revival.

The quarter had two important sources of support for investments. The Tamil Nadu government organised an investments conclave in November 2021 to attract investments into the state. Memoranda of Understanding (MoU) were signed for 59 projects entailing a total investment of Rs.352 billion. The second source of support came from Gujarat. The state is scheduled to host its tenth Vibrant Gujarat summit in January 2022. But, the state started announcing the MoUs associated with the summit in advance. As a result, we found 42 projects entailing an investment of Rs.435 billion being announced in the quarter of October-December 2021.

Besides, 11 projects were announced under the Production Incentive Linked (PLI) scheme of the central government. These envisaged an investment of Rs.3 billion.

Investment announcements that can be associated with central and state government initiatives therefore contributed Rs.790 billion worth of investments from the 112 projects. These initiatives are mostly geared towards motivating private enterprises to invest. Except for three projects in Gujarat all the projects are in the private sector.

Our experience from the past indicates that events like Vibrant Gujarat often create a much bigger spectacle than the final delivery of projects. Business entities seem to sign MoUs and often do not move far beyond that. There are indications that this time may not be different. For example, listed company SRF has signed MoU with the Gujarat government for investments but have not disclosed this to the stock exchanges.

Interestingly, in spite of the substantial subsidy involved in the PLI scheme, the amount of investments attracted by the scheme is quite small at just Rs.3 billion in a quarter.

The quarter ended December 2021 attracted new investments worth Rs.2.1 trillion. This includes Rs.0.7 trillion of the Rs.0.79 trillion worth of investments from the government-led initiatives mentioned above.

While governments have played a role in motivating private sector to invest, their own contribution to the investment cycle continues to remain very low. Governments (both Central and state) investment in new projects accounted for only 20 per cent of the total new investment proposals made during the quarter ended December 2021. The government’s share in new investment proposals used to be around 50 per cent in the past. This fell to 21 per cent in the quarter ended December 2020. Since then, it has not recovered. The average share of government in new investment proposals in the five quarters since December 2020 is 21 per cent. This is a big fall compared to the average of 55 per cent share government had in the five quarters preceding the October-December 2020 quarter or, the average of over 50 per cent since 2014.

Chemicals, electricity and metals are the major beneficiaries of new investment proposals during the December 2021 quarter. Chemicals accounted for a quarter of all new proposals. Reliance Industries and SRF lead in investments in chemicals. Greenko and SJVN (Satluj Jal) lead in investments in the electricity sector. Greenko is investing into conventional energy and SJVN into renewables. BMM Ispat has the largest investment proposal in steel in the metals industry. It is expanding its Hospet (Bellary) plant.

The Rs.2.1 trillion worth of investment proposals recorded during the quarter ended December 2021 are lower than the Rs.2.2 trillion worth of investment proposals recorded in the quarter ended September 2021 or the Rs.2.7 trillion worth of investments in the quarter of June 2021. But, it can be considered to be a fair and somewhat promising first estimate.

The first estimate of new investment proposals during a quarter is made as soon as the quarter ends. But, information regarding projects announced during the quarter keep flowing in for a few more months. These are added retrospectively and therefore the first estimate of new investments during a quarter is revised regularly. For example, the first estimate of new investments in the quarter ended September 2021 was Rs.1 trillion. This is now revised to Rs.2.2 trillion. The first estimate for the quarter ended June 2021 was Rs.1.6 trillion. This was revised to Rs.2.6 trillion by the end of the September quarter and then further to Rs.2.7 trillion by the end of the December 2021 quarter.

Extrapolating on the basis of these past experiences with revisions the first estimate of Rs.2.1 trillion in the December 2021 quarter can be considered to be promising. A caveat is that the estimate is partly boosted by the efforts of state governments and therefore may not reflect a revival of the investment climate in India. The increase can be seen as the result of the governments’ efforts at motivating private enterprise to invest. The results can be interpreted as partly propped up.

These estimates will be revised upwards in the coming months and the next quarter may be further propped up by Vibrant Gujarat. The numbers in new investment proposals can therefore be expected to start looking better than the Rs.2 trillion per quarter that has been seen since the pandemic. The pre-pandemic levels were at least twice that at Rs.4 trillion per quarter.