The 83rd Survey of Projects Investment in India indicates a fall of 18 percent in fresh investment announcements in the latest quarter ended 30 June 2021 on quarter-on-quarter basis. The quarter (April-June 2021 or Q1/FY22) saw announcement of 2,199 new projects intending to bring in fresh investment of Rs 3,34,572.52 crore. The preceding quarter (Q4/FY21) had seen announcement of 2,716 new projects worth Rs 4,08,237.15 crore.
The second wave of COVID-19 hit the country in April 2021 and forced some of the major states to announce partial lockdown throughout the quarter ended June 2021. However, economic activities across the country did not affect as severely as they did in the first quarter of FY21, when the pandemic first hit the country resulting in a nation-wide complete lockdown.
Although the pace of announcement of fresh investment projex (projects expenditure) slowed down due to the COVID 2.0 induced partial lockdown, the fall was not as steep as was observed in the first quarter of the last fiscal, when COVID 1.0 was at the peak. Further, the fall in fresh investment in the first quarter could have been still lower had government agencies not held back their new projex plans.
Fall in Mega Projects
As against 89 mega projects (project cost of Rs 1,000 crore or more) aggregating Rs 2,40,541.66 crore announced in the preceding quarter, Q1/FY22 saw announcement of only 42 mega projects worth Rs 1,98,823.38 crore. This included the super mega projects announced by Reliance Industries (Rs 60,000 crore) and Adani Enterprises (Rs 29,000 crore). In the previous quarter, only one such mega project was announced by ArcelorMittal Nippon Steel India to set up an integrated steel project in Odisha at a cost of Rs 50,000 crore.
While the 42 mega projects accounted for 71 percent of the total fresh investment announced in Q1/FY22, the 26 private mega projects accounted for 57.45 percent of the total fresh investment the quarter attracted.
Projex by Ownership
Fresh investment by the government sector after contracting in Q3/FY21 (Oct-Dec 2020), bounced back in the last quarter (Jan-Mar 2021) of FY21. The COVID 2.0 wave saw government agencies’ fresh projex plans contracting once again.
The fresh investment announcements by the government sector had declined by 11.29 percent in Q3/FY21. In the subsequent quarter, it increased by 21.53 percent only to decline once again by 41.65 percent in the quarter ended June 2021. In Q1/FY22, the government sector saw announcement of 1,292 new projects worth Rs 97,376.16 crore.
In contrast, the decline in the private sector was minimal at 1.73 percent in Q1/FY22 on Q-o-Q basis. The country saw 907 new private projects with fresh investment of Rs 2,37,196.36 crore. Around 71.87 percent of the private fresh investment was found in the Manufacturing sector. In all, 544 new projects entailing a total investment of Rs 1,70,473.46 crore were announced in the quarter. The next highest concentration was seen in the Infrastructure sector with 327 new projects worth Rs 51,463.87 crore.
Projex by Sectors
Of the five major sectors, Infrastructure was the one where both number of new projects as well as fresh investment declined sharply in the first quarter. As against 1,961 new projects worth Rs 1,97,884.74crore announced in Q3/FY21, 464 less projects i.e. 1,497 new projects worth Rs 1,20,806.91 crore were announced in Q1/FY22.
Mostly aided by the 14 mega private projects with a total investment commitment of Rs 1,34,395 crore, the Manufacturing sector posted a healthy growth of 42.87 percent on Q-o-Q basis and accounted for 51.1 percent of the total fresh investment emanated in the first quarter of FY22. In all, 565 new projects worth Rs 1,70,954.18 crore were announced in this sector. The preceding quarter had seen announcement of 545 new projects worth Rs 1,19,654.87 crore.
Within the Manufacturing sector, food processing, drugs and pharma, plastics, steel, electronics sectors bucked the COVID 2.0 hurdles and posted handsome growth rates in fresh investment.
In the last week of June 2021, Reliance Industries announced its plans to set up four factories for manufacturing integrated solar photovoltaic modules, advanced energy storage, an electrolyser factory for producing green hydrogen and a fuel cell factory for converting hydrogen into motive and stationary power. The company intends to invest around Rs 60,000 crore on these projects over the next couple of years.
The next largest project proposed in the Manufacturing sector was by Adani Enterprises. The company intends to set up a coal-to-PVC plant at Vandh & Tunda village in Kachchh district of Gujarat. The Rs 29,200 crore project is expected to materialise by April 2023.
The third largest investment intention was announced by Rungta Mines of Odisha, which plans to expand its twin steel plants in the state at a total cost of Rs 18,921 crore.
To avail the benefits of the Production Linked Incentive (PLI) Scheme of the Central government, the Drugs & Pharmaceutical sector had seen a number of new pharma projects being announced in the last couple of quarters. The first quarter of FY22 was no exception. In all, 217 new drugs and pharma projects with a total investment of Rs 8,541 crore were announced between April and June 2021. This was on top of 131 new projects worth Rs 6,540 crore announced in the preceding quarter.
After attracting an average investment of around Rs 22,900 crore in Q2/FY21 and Q3/FY21, the Mining sector saw fresh investment announcements declining sharply to around Rs 6,900 crore in Q4/FY21.
Thanks to a couple of mega coal mining expansion projects announced by the Coal India subsidiaries — Central Coalfields and Mahanadi Coalfields, the fresh investment in the Mining sector increased to Rs 18,901.29 crore in the first quarter of FY22. In all, the Coal India subsidiaries are investing Rs 13,604 crore in seven new projects. Apart from the coal sector, the iron ore mining sector also saw announcement of Rs 1,020.63 crore iron ore mining project by the Odisha Mining Corporation.
Since last two quarters, fresh investment in the Electricity sector was dominated by the Non-conventional power projects, especially Solar-based power projects. Though the overall fresh investment in the Electricity sector declined by 63.8 percent and by 54.32 percent in the Solar power sector, the sector saw announcement of 68 new Solar power projects worth Rs 23,127 crore on top of 52 new projects worth Rs 50,629.77 crore in the preceding quarter.
Among the Solar power project promoters, the leading player during the quarter was the Maharashtra State Electricity Distribution Corporation. The company announced 29 new projects entailing a total investment of Rs 7,000 crore.
The fall in government commitment towards fresh capex in the first quarter of FY22 saw the aggregate fresh investment in the Infrastructure sector dropping by 38.95 percent in the latest quarter ending June 2021. In all, 1,497 new projects worth Rs 1,20,806.91 crore were announced in this quarter as against 1,961 projects entailing a total investment of Rs 1,97,884.74 crore announced in the preceding quarter.
Within the Infrastructure sector, Community Services, Roadways and Real Estate sectors accounted for bulk of the investment (nearly 83 percent).
Among the three major sub-sectors, the lowest fall of 7.28 percent was seen in the Real Estate sector. As against 364 new projects worth Rs 41,683 crore announced in Q4/FY21, 288 new projects worth Rs 38,650.7 crore were announced in the April-June 2021 quarter. Oberoi Reality’s Rs 5,973 crore Majiwade Residential complex in Thane, Maharashtra, was the largest real estate project announced in this sector.
Decline in big-ticket projects and announcement of less number of new projects by the national highway builder and the largest investor National Highways Authority of India (NHAI) led to a fall of 58.81 percent in fresh investment in Q1/FY22 on Q-o-Q basis. New investment proposals declined from Rs 82,423.58 crore in Q4/FY21 to Rs 33,952.83 crore in Q1/FY22.
In the last quarter of FY21, NHAI had taken up 64 new highways projects with a total outlay of Rs 41,412.36 crore. It failed to maintain the tempo in the first quarter of FY22 and announced only 24 highways worth Rs 17,285.74 crore.
The investment in the Community Services sector, comprising sub-sectors like Hospital, Tourism, Water Supply and Effluent Treatment is dominated by state government agencies. As compared with the preceding quarter, the sector not only saw a fall in fresh investment but also a major decline in the number of new projects announcements. As against 758 projects worth Rs 33,599.31 crore announced in Q4/FY21, only 505 projects worth Rs 27,452.26 crore were announced in the latest quarter.
The Irrigation sector did not see any major project announcements in the first quarter of FY22.
Projex by States
Aided by the super mega projects of Reliance Industries and Adani Enterprises, Gujarat topped the projects investment table with a total fresh investment of Rs 1,08,494.55 crore spread across 265 projects. The Rs 89,200 crore of fresh investment commitment of the two corporate groups saw the state cornering nearly one-third of the fresh investment announced in the country in the first quarter of FY22.
The second-ranked Maharashtra was one of the worst affected by the second wave of COVID-19, which rampaged the country in the first quarter of FY22. Notwithstanding the pandemic and the partial lockdown, the state managed to attract 302 new projects with investment commitments of Rs 43,559 crore and held on to its second position, which it had earned in the preceding quarter.
The last quarter’s topper Odisha managed to grab third position in this quarter. As against 109 new projects worth Rs 63,027.32 crore announced in Q4/FY21, the state attracted 157 new projects worth Rs 29,977.97 crore in Q1/FY22.
While Karnataka (203 projects worth Rs 21,261.90 crore) moved one rank down from third to fourth, another southern state, Telangana (163 projects, Rs 16,771.77 crore) moved up from eighth rank in Q4/FY21 to fifth rank in Q1/FY22.
The outstanding projects investment between June 2020 and June 2021 grew at a slower rate of 8.3 percent majorly because of fall in fresh investment announcements on the backdrop of the COVID-19 pandemic and elections held in major states like Kerala, Tamil Nadu, Assam and West Bengal during March and April 2021.
As of June 2021, there were 78,969 projects entailing a total investment of Rs 1,66,95,329 crore. The project implementation ratio (Investment Under Execution/Total Investment*100) increased from 37.0 percent in June 2020 to 38.51 percent as of June 2021.
The slowdown in announcement of new projects by government agencies saw the overall share of the government in the total investment pie from 68.38 percent to 66.73 percent by June 2021. On the other hand, the share of the Private sector increased from 31.62 percent to 33.27 percent.
In the first week of April 2021, when we presented our 82nd Survey, we did not expect COVID 2.0 to be as severe as we saw in May 2021 and in the first half of June 2021. The flaring up of COVID 2.0 forced many major states to declare partial lockdown, which continued throughout the first quarter. As a result, both economic activities and announcement of fresh projects were affected. However, the severity was not as much as observed in the first quarter of FY21.
The fall in fresh investment during the first quarter was also because of sharp fall in announcement of new projects by government agencies — both Central and State. Recognising this, the Union Finance Ministry has rightly egged government agencies to front load their capital expenditure plans. We completely concur with the Finance Ministry’s move. This, along with the timely execution of 8,068 projects worth Rs 153.37 lakh crore listed in NIP will not only revive the economy, but will also instill confidence in private companies to expedite their capex plans too.