Fresh investment announcements in the July-to-September quarter, the second quarter of 2023-24, have dropped to ₹6.9 lakh crore, 13% lower than the first quarter, and 21.5% down from a year ago, driven by a sharp dip in proposed outlays by the Union government and foreign investors, and a broad-based contraction across the manufacturing, mining, infrastructure, and electricity sectors.
The decline in investment commitments during Q2 comes on the back of a 45.8% sequential decline recorded in the first quarter, as per Projects Today’s latest investment survey. A total of 2,238 new projects with an aggregate investment intention of ₹6.88 lakh crore were announced in Q2, as against 2,745 new projects worth ₹7.91 lakh crore in Q1, with the projects’ tally contracting 18.5%.
Private investment plans shrank for the second quarter in a row, albeit at a slower pace of 0.24% compared to the 62.5% contraction in Q1. Within the ₹3.93 lakh crore of private investment projects in Q2, announcements from foreign investors shrank 66.5% from Q1 levels to around ₹28,000 crore. Though domestic private players announced 17.8% larger outlays in Q2, the number of new projects fell to 844 from 1,180 in Q1.
Public capex plans down
While public capital expenditure has been driving the investment cycle in recent times, government investments also seem to have lost steam in the first two quarters of this year. Fresh investment intentions sequentially declined 25.6% in Q2 to about ₹2.96 lakh crore from ₹3.97 lakh crore in Q1, which marked a 3.2% fall from the previous quarter.
Within the government sector, new projects from Union government agencies dropped 47.4% in Q2 following a 20.6% contraction in Q1, bringing proposed outlays between July and September to ₹1.02 lakh crore from over ₹2.44 lakh crore in the January-to-March 2023 period.
States’ investment plans recorded a milder 4.7% shrinkage in Q2 vis-à-vis Q1, when they had crossed ₹2.03 lakh crore. The irrigation sector, which is usually driven by smaller-ticket investments initiated by States, was the only segment to clock a sequential uptick in Q2, with project outlays more than doubling to ₹12,000 crore from under ₹5,000 crore in Q1.
Mixed outlook
With several State assembly elections looming and geo-political risks to the global economy getting exacerbated amid weak demand conditions, the outlook for the second half of the year is mixed on the investment front, said Projects Today’s director and CEO Shashikant Hegde. Any hope for an uptick in Q3 and Q4 would depend on higher project announcements from the Union government ahead of next year’s general election.
“After the decline observed in Q2, we may see increased capex announcements from the Central government agencies in the next two quarters, while private firms, especially mid-sized ones, could adopt a wait-and-watch approach given the uncertainties about demand in major world markets and the deteriorating geo-political situation,” Mr. Hegde noted. Moreover, the focus may shift towards large private investors who have already announced projects, seeking government support in getting those investments off the ground.
Among the States, Odisha and Telangana emerged as the top two States, accounting for over a third of proposed investments in the last quarter. Maharashtra, which saw the highest number of new projects (436) worth ₹78,550 crore, was ranked third, followed by Karnataka, with projects worth ₹53,565 crore. Gujarat had the second highest number of projects (222), but was ranked eighth in terms of outlays involved, followed by Madhya Pradesh, which pipped Tamil Nadu that was ranked 10th with 98 projects worth ₹22,347 crore.