New project investments hint at road to normalcy, touch Rs 3.57 trn in Q1

New project investments by private and government entities in the April-June quarter exceeded last year’s first quarter numbers.

The total value of new projects stood at Rs 3.57 trillion for the three months ended June 2022 (Q1 FY23), the data from project tracker Centre for Monitoring Indian Economy showed. The Q1 numbers are 21.4 per cent higher compared to the same period last year. There were new projects worth Rs 2.94 trillion in the June 2021 quarter.

Meanwhile, the March 2022 quarter figure came in at Rs 5.9 trillion. The value of new projects can vary at different times of the year. Last year had seen the worst impact during the second wave of the Covid-19 pandemic, which spanned the April-June period. New projects have been inching closer to normalcy, though a definitive trend is yet to emerge.  

Around Rs 87,000 crore worth of projects were completed in June 2022. The completion rate is 22.5 per cent higher than last year. The value of stalled projects fell 39.4 per cent to around Rs 20,000 crore. Such investments are known as capital expenditure. It covers the building of roads and other infrastructure, as well as setting up of factories or new production capacities.

Higher investments can help boost economic growth. Companies typically make new investments when existing capacity is not able to keep up with demand.

Capacity utilisation had dropped to less than 50 per cent during the worst period of the pandemic, amid government curbs. Capacity utilisation has been picking up, according to the Reserve Bank of India’s (RBI’s) quarterly Order Books, Inventories and Capacity Utilisation Survey.

The survey of 800 manufacturing firms showed that they were operating at over 70 per cent of their capacity. This is significantly higher than the pandemic low of 47.3 per cent for the first quarter of the financial year 2020-21 amid the Covid-induced lockdowns. The current levels show an increasing trend from the immediately preceding quarter as well.

“The capacity utilisation for the manufacturing sector at the aggregate level picked up further to 72.4 per cent in Q3 of 2021-22. It was 68.3 per cent in the previous quarter and reflected improved manufacturing activities,” said the survey, which was released with a lag. The latest is for the three months ending December 2021. This may have risen further, according to RBI Governor Shaktikanta Das, who mentioned it as part of a statement on June 8. 

“Going by the early results of our surveys, capacity utilisation in the manufacturing sector increased further to 74.5 per cent in Q4 of 2021-22 from 72.4 per cent in Q3 in 2021-22. Capacity utilisation is also likely to increase further in 2022-23,” he said.

Company balance sheets are in a better position for investment in new projects, S N Subrahmanyan, chief executive officer and managing director of Larsen and Toubro (L&T) said while discussing the company’s results with analysts and investors during an earnings call on May 12.

“Some of the balance sheets, which were very bad, also got acquired by better balance sheets. As the economy grows, I expect private capital to start getting invested. The companies, which are leveraged, have come down on the leverage and are now thinking of possibilities of investments,” he added.