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In an exceptionally slow start to private capex in this financial year, new investment plans in the country slumped to a 20-year low in the April to June quarter, with just ₹44,300 crore of fresh outlays announced by corporates.

The first quarter of 2023-24 had recorded new investment announcements of nearly ₹7.9 lakh crore, while outlays worth ₹12.35 lakh crore were announced in the preceding January to March 2024 quarter. In all, last year had seen investment announcements worth ₹27.1 lakh crore, the second highest in 10 years.

While a part of the tepid investment levels in the first quarter (Q1) of 2024-25 could be explained by investors adopting a wait-and-watch approach amid the Lok Sabha elections, this tally is far lower than the same quarter over the past two general elections held in 2014 and 2019. New investment plans in Q1 of 2014-15 were at ₹2.9 lakh crore, while they added up to ₹2.1 lakh crore in Q1 of 2019-20.

“Since the economy has been growing steadily, the only reason to explain the sluggish investment plans in the last quarter could be that the industry has been in a wait and watch mode,” said Bank of Baroda chief economist Madan Sabnavis, who hoped that investments should pick up in the coming quarters.

While the April-June quarter tends to have lower investment announcements, it has been exceptionally low this year, the bank’s economic research department said in a note based on data from the Centre for Monitoring Indian Economy (CMIE), adding that this had not been the trend in the past when elections were held. Another factor for the slowdown could be that the last two years have seen high investment announcements that are yet to run their course.

“It would need to be seen whether there is any major pick-up in the second quarter considering that the Budget will be announced only towards the end of July. A good monsoon and steady demand during the festival season which starts from the end of August and lasts till December would be the time when investment could increase at a faster pace,” the Bank of Baroda report concluded.

Data on corporate bond issuances as well as bank credit flows for Q1 seem to corroborate the trend of slowing investment plans, the report noted. Corporate bond issues fell sharply from ₹2.86 lakh crore in the first quarter of 2023-24 to ₹1.73 lakh crore in Q1 this year, with over three-quarters raised by financial services players. Between April 1 and June 14, incremental bank credit was ₹2.78 lakh crore as against ₹3.78 lakh crore last year, with growth slipping to 1.7% from 2.5% last year.

Within the ₹44,000-odd crore investments announced over Q1, manufacturing outlays dominated with a 46.4% share followed almost evenly by electricity and services.

“Interestingly, over the period between June 2023 and June 2024, the fall in value of investment announcements was ₹7.4 lakh crore. Of this, the major dip was accounted for by the transport services sector at 61%,” the report said, linking this to the airline industry’s plans to buy new aircraft announced last year.

This pattern would be observed in the coming quarters too as these plans are unlikely to be restored until the earlier orders are executed fully, the bank’s economists noted. “Another 20% of the decline of the order of around ₹1.5 lakh crore was in the electricity sector. In the past, most of the additions have been in the renewable space and here too a slowdown may be expected,” the report reckoned.