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After dip in COVID-hit first quarter, investments recover

Investment activity rebounded sharply between July and September after a dip in the COVID-hit first quarter of the year, lifting fresh investment commitments in the first half of 2021-22 by 13.5% over pre-pandemic levels, as per Projects Today’s latest survey on fresh investments.

The second quarter recorded around 15% growth in fresh investments compared to the previous quarter, with 2,669 new projects committing investments of over ₹3.84 lakh crore, spurred primarily by central public sector undertakings and some private investments.

Investments had declined sequentially by 18% between April and June as the second COVID wave triggered lockdown across States, but the lifting of restrictions as the wave ebbed has enabled resumption of capex activities across the country.

While investment plans recovered, two critical indicators of actual capital spending — project tendering and project contracts — registered an impressive growth in Q2, rising by 52.7% and 19.33%, respectively, over the previous quarter.

Despite the first quarter setback, fresh investments between April and September rose to nearly ₹7.19 lakh crore compared to ₹6.34 lakh crore in the pre-COVID year of 2019-20. The number of new projects fell by 11.5% in 2021-22 from the 5,503 new projects announced in 2019-20, indicating that the ticket size of the average investment has risen.

“The small growth seen in fresh investment is not spread across major sectors and States,” the investment monitoring firm noted.

Manufacturing investments were over three times higher than the first half of 2019-20 at about ₹2.79 lakh crore, while electricity was the only other sector to see an uptick in investments. Though mining projects declined marginally from 2019-20 levels, infrastructure investments declined significantly from ₹4.12 lakh crore to ₹3.11 lakh crore in 2021-22.

Resource crunch

Interestingly, irrigation investments which had more than doubled year-on-year in the first half of COVID-hit 2020-21 to ₹40,075 crore, saw a steep fall to a mere ₹4,129 crore this year. This indicates a severe resource crunch in State governments which was also reflected in the second successive quarter of declining investment proposals from State Government agencies in Q2.

Though fresh investments by Central Government agencies recovered swiftly in Q2 after a 42.8% dip in Q1, overall fresh investments by the Government sector declined by 24.5% in the first half of this year, compared to pre-pandemic levels.

On the brighter side, private fresh investment not only maintained its sequential growth seen since the second quarter of 2020-21, but also surpassed the pre-pandemic levels in the first half of this year by a healthy 48.9%. “As against 1,955 new projects worth ₹3,27,411.28 crore announced in H1/FY20, the first half of FY22 saw announcement of 2,012 new projects worth ₹4,87,633.95 crore,” the survey noted.

Shashikant Hegde, director and CEO of Projects Today, told The Hindu that private sector investments are likely to keep growing, albeit at a slower rate, with sectors such as textiles, pharma, electronics and data centres expected to attract domestic and foreign investors through the second half of this year and 2022-23.

“Responding to the request of Union Finance Minister Nirmala Sitharaman to front load their capex plans, the Central Government companies and agencies upped their fresh investment from ₹43,543.45 crore in Q1 to ₹86,826.85 crore in Q2. We expect this trend to continue in the next two quarters but the same cannot be expected at State level, as most of the States are currently facing financial crunch,” he said.

Barring the risk of a third COVID-19 wave, fresh investments are expected to keep rising in 2021-22 and the Centre must prioritise implementation of the 8,000-plus projects in the National Infrastructure Pipeline to expedite this recovery, Mr. Hegde noted.

Top 5 States

Gujarat, Maharashtra, Telangana, Karnataka and Odisha, the top five States for fresh investments between April and September, accounted for around half of the total fresh investments announced. Gujarat was far ahead of the pack with ₹1.32 lakh crore of fresh investments, followed by Maharashtra at ₹1.03 lakh crore and Telangana at a distant third with ₹55,670 crore of outlays.

The growth in the first half of this year compared to 2019-20 was, however, mainly because of increased fresh investment attracted by States like Telangana, Odisha, Haryana, Chhattisgarh and Uttar Pradesh. Gujarat registered a meagre growth of 3.71% over pre-pandemic levels, while Maharashtra saw investment declining by almost 36%.

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