New projects, which may include governments and companies building roads or setting up factories, rose 13.2 per cent in March compared to the December quarter. The number is down 69.3 per cent compared to March last year.
New projects were valued at Rs 1.2 trillion in March 2020 compared to Rs 1.06 trillion in December 2020, and 3.91 trillion in March 2020, showed data from project tracker Centre for Monitoring Indian Economy (CMIE).
Completed projects are down 69.4 per cent year-on-year to Rs 0.53 trillion. It is down 31.2 per cent over the December quarter.
Companies are usually reluctant to spend on setting up new factories when their existing factory capacity is not fully utilised. Capacity utilisation has been lower after the Covid-19 pandemic, showed the latest Reserve Bank of India’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the quarter July-September 2020. The data appears with a lag. The September 2020 data was released in February 2021.
“After recording the historical low of 47.3 per cent in Q1:2020-21, which witnessed COVID-19 pandemic related restrictions and lockdown, aggregate level capacity utilisation (CU) recovered to 63.3 per cent in Q2:2020-21. Seasonally adjusted CU also increased to 64.1 per cent in Q2:2020-21 from 47.9 per cent in the previous quarter,” it said.
The reluctance to spend on capex in uncertain environments is a global phenomenon, said a March 12 research report from the Jefferies Group, which provides financial services across multiple countries. Companies were more willing to keep investing even at the cost of lower margins in the days preceding the Global Financial Crisis (GFC) which happened around 2008, according to the report called ‘Quantamentals Microstrategy - Margin Risk from Inflation’.
“Prior to the GFC, companies were trying to keep pace with the strong economic growth by sometimes overspending on value-destructive capex at the expense of margins. However, post-GFC,...(margins)...have been generally on the rise as companies have gotten lot more circumspect...(about over-investing)... in an uncertain and slow growth environment,” said the report’s authors including analysts Mahesh Kedia, Jeffrey Tong and Desh Peramunetilleke, global head of microstrategy at Jefferies.
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