The positive growth seen in new projects announcement, floatation of project tenders and finalisation of project contracts in the second quarter of the current fiscal (Q2/FY21) indicate determination and willingness of the Indian project fraternity to resume capacity building at the earliest.
During July-September 2020 period (Q2/FY21) fresh investment proposals increased by a healthy 67.2 percent in terms of new projects and by 107.1 percent in terms of projects investment on Q-o-Q basis. In all, 2,219 new projects entailing a total investment of Rs 2,19,170.1 crore were announced during this quarter. In the preceding quarter, i.e. April-June 2020 (Q1/FY21), the country had seen announcement of 1,327 new projects worth Rs 1,05,817.9 crore.
On a Y-o-Y basis, fresh investment during Q2/FY21 registered a fall of 11.32 percent. In the first quarter of FY21, such decrease was a steep 72.6 percent.
In the first half of FY21 (April-September 2020), the economy moved from a complete lockdown during April-May to a staggered unlocking since June 2020. Hence, comparisons on Q-o-Q basis or Y-o-Y basis will not give a true picture of the investment scenario. Since the country is coming out of one of the strictest lockdowns seen across the globe in Q1/FY21 to a gradual unlocking scenario in Q2/FY21, in this study we preferred the Q-o-Q comparison to see the effect of lifting the lockdown on projects investment in India.
Fresh Projex by Sectors
While the quarter-on-quarter increase seen in fresh projects investment was spread across all major sectors (see table), the growth registered in the Manufacturing sector was very interesting. The sector saw announcement of fresh investment increasing by 31.3 percent on Q-o-Q basis and 19.8 percent on Y-o-Y basis. In all, 315 new projects worth Rs 35,195.68 crore were announced in Q2/FY21. Around 96 percent of the total fresh investment in this sector was announced by private promoters.
The Solar Cells and Modules project of Vikram Solar in Tamil Nadu worth Rs 5,423 crore, the Electric Vehicles project of Edison Motors in Uttar Pradesh worth Rs 5,000 crore and the Iron Pipes project of Welspun Corp in Gujarat worth Rs 1,250 crore were some of the mega private projects announced in the Manufacturing sector.
Anticipating an increase in demand for pharma products locally and globally, 98 new drugs and pharma projects were announced. Most of these were to produce Active Pharmaceutical Ingredients, currently imported from China. Of these, the Rs 864 crore API and Intermediates project of Jubilant Generics was the largest. The company proposes to set up a plant with a capacity of 1,614 million tpa in Karnataka.
The Mining sector saw 35 new projects with a total investment outlay of Rs 22,178.5 crore. Of these, the two mega projects of Central Coalfields and South Eastern Coalfields were prominent. The Coal India subsidiaries propose to invest around Rs 17,500 crore on new mine development plans in Jharkhand and Chhattisgarh.
In the Electricity sector, a bulk of the fresh investment came from promoters of non-conventional power projects. Of the 79 new projects announced in the Electricity sector, 56 projects worth Rs 9,731 crore were for setting up solar-based power projects. Of these, the projects of the Gujarat State Electricity Corpn, TEQ Power and ReNew Power would bring in fresh investment of around Rs 1,000 crore each.
Fresh projex in Infrastructure expanded by 97.9 percent on Q-o-Q basis. In all, 1,751 new projects with a total investment outlay of Rs 1,15,905.6 crore were announced in Q2/FY21. The Community Services, Roadways, Commercial Complex, Real Estate sectors saw impressive growth in fresh projex announcements in the second quarter of FY21.
Community Services attracted around 50 percent more investment when compared with the Q1 investment figures. Sectors like Hospitals, Tourism and Water Supply & Treatment attracted Rs 4,574.7 crore, Rs 4,854.2 crore and Rs 10,724.6 crore respectively.
The Ichchwakupuri Religious Complex at Ayodhya, Uttar Pradesh, worth Rs 3,000 crore, the Buddhist Theme Park at Nagpur, Maharashtra, worth Rs 1,000 crore and the sewage treatment plants in Hyderabad, Telangana, worth Rs 1,081.75 crore were the mega investment intentions announced in this sector.
In the Transport Infrastructure sector, around 80 percent of the fresh investment emanated in Q2/FY21 was accounted for by new roadways projects. The 267 new road projects will see fresh investment flow of Rs 27,246.64 crore. NHAI accounted for 31 new highway projects entailing a total investment of Rs 15,000 crore.
The Delhi-Amritsar-Katra Expressway (Package 1, 3 & 5) worth Rs 3,048 crore and the Azhiyur-Vengalam highway project worth Rs 1,382.56 crore were the mega projects taken up by NHAI in Q2/FY21.
The complete halt of construction activities in the Commercial Complexes and Real Estate sectors in Q1/FY21, led to a fall in announcement of new projects too. Although the staggered unlocking of the economy in Q2/FY21 did not lead to increase in the pace of project execution due to labour and liquidity issues, the announcement of new projects gained momentum. Reflecting this, the number of new projects announcements in this sector doubled from 224 new projects to 450 new projects in Q2 and the corresponding proposed investment increased from Rs 7,326.2 crore to Rs 33,969.3 crore. A year ago, during the same period, the country had seen announcements of 451 new projects worth Rs 30,371.7 crore.
The Private sector accounted for around 40 percent of the new projects and 67 percent of the fresh investment announced in Q2/FY21. A commercial complex project of DLF in Haryana, worth Rs 2,600 crore, a commercial complex project of Shreno in Karnataka, worth Rs 1,852.7 crore, a residential complex of Zuari Infraworld at Delhi, worth Rs 1,400 crore and a slum rehabilitation project of Shiv Infra Vision at Mumbai, worth Rs 1,015 crore, were some of the mega private projects announced in this sector.
The announcement of two big-ticket irrigation projects helped the sector to post a healthy increase in fresh investment in Q2/FY21. The largest one with an investment outlay of Rs 22,653 crore Bodhghat project was announced by the Water Resources Department of Chhattisgarh. The Irrigation & CAD Department of Andhra Pradesh has taken up the implementation of Rayalaseema Lift Irrigation scheme at a cost of Rs 6,829 crore.
Fresh Projex by States
Among the major states, Chhattisgarh topped the table by attracting fresh investment of Rs 35,771.3 crore in the form of 114 projects. Tamil Nadu ranked second with 132 new projects worth Rs 23,331.85 crore. The third ranked state, Karnataka, attracted Rs 19,958.9 crore with the highest number of new projects, 287.
Gujarat and Maharashtra followed the suit leaders with fresh investments of Rs 15,532.1 crore and Rs 15,004 crore respectively.
The Rs 22,653 crore Bodhghat Irrigation project and a couple of mining projects worth Rs 8,197 crore by South Eastern Coalfields helped Chhattisgarh to top the investment table in Q2/FY21.
While a couple of Data Centre projects and a Solar Cell & Modules project helped Tamil Nadu to be the second preferred state of project promoters, Karnataka state benefitted by a couple of high-ticket Commercial Complex and Real Estate projects and Rs 5,000 crore Life Science Park project of KSIIDC.
Fresh Projex by Ownership
The complete lockdown of the economy, migration of labour to their hometown, disruption of supply chain infrastructure and non-availability of liquidity at reasonable interest rates affected private sector the most in Q1/FY21. However, the stagewise unlocking of the economy from June 2020 onwards saw a jump in the private investment both in terms of number of projects and investment planned therein.
In Q2/FY21 the private sector announced 618 new projects worth Rs 83,608.2 crore as against 315 new projects worth Rs 44,714.6 crore announced a quarter ago. In terms of projects investment this indicated a rise of 87.0 percent. Compared with a year ago statistics, this indicated a fall of just seven percent.
Fresh investment announcement by state government-owned agencies increased by 146.3 percent in the quarter ended September 2020. In all, 1,139 new investment proposals with a total outlay of Rs 81,222.6 crore were announced. The investment by the Central government-owned agencies increased by 93.2 percent during the same period. The 462 Centrally-sponsored new projects are expected to bring in fresh investment of Rs 54,339.3 crore.
In Q2/FY21, a bulk of the investment of state agencies was directed towards the Community Services, Hospitals, Irrigation, Roadways, Real Estate, Tourism and Water Supply and Treatment sectors. In the case of Central government sectors like Coal Mining, Community Services, Roadways and Solar Power attracted increased investment proposals.
Outlook for H2/FY21
The impressive increase in fresh investment proposals, increased tendering activities and a sharp jump in the number of finalised project contracts in Q2/FY21 vis-à-vis the preceding quarter do indicate a bounce back in projects investment activities in India. However, it would be too early to proclaim the return of normalcy in projects investment.
The Rs 83,608 crore fresh private investment seen in Q2/FY21 was far less than the average quarterly fresh investment of Rs 1,69,000 crore and Rs 1,32,000 crore seen in FY19 and FY20 respectively.
The project implementation ratio (projects investment under execution as percentage of total outstanding investment) improved by a tad from 37.0 percent in Q1/FY21 to 37.53 percent in Q2/FY21. This indicates that at ground level, project execution has not gained much traction in the second quarter. The pain issues like scarcity of labour, supply chain disruption and liquidity persisted in Q2/FY21 too.
Though on its part the Central government is doing its best to prop up the sagging economy through various reform measures, it will take a while for actual projects investment to gain pace at ground level. Till that time, the onus of keeping the Projex cycle moving will be on the Central government, which has to step up its infrastructure spending and rope in private promoters in sectors like Roadways, Railways and Construction. This move will not only help in increasing employment opportunities, but would also lay the ground for attracting increased investment from Indian and foreign companies.
Among the major sectors, Drugs & Pharma, Healthcare, Roadways, e-Commerce and Social Infrastructure will see increased investment in coming months. Sectors like Automobiles, Steel, Cement and Capital goods will wait for revival in overall demand before chalking out fresh investment plans. Currently, hard-hit sectors like Construction, Tourism and Aviation will need hand-holding from the government for posting some sort of recovery in H2/FY21.
While the good monsoon and increase in agri-procurement prices have raised the hope of demand revival in coming quarters, early containment of the COVID-19 pandemic, complete unlocking of the economy and increased government spending will nudge the economy back to the high growth orbit.