The decline in the growth rate (4.1 percent) of the Indian economy in the last quarter of fiscal 2022, the recent slowdown in the Manufacturing sector, rising crude oil and commodity prices, had an effect on the quantum of fresh investment committed by project promoters in the first quarter of the fiscal 2023 (Q1/FY23). As a result, the growth momentum observed in the last four quarters of FY22 in the announcement of fresh investment lost steam in Q1/FY23. The prevailing uncertainties in the global business and economic environment slowed down the pace of new capex in both the private and government sectors.
As per the 87th Survey of Projects Today, the announcement of the new projects declined by 20.5 percent on a Q-o-Q basis in Q1/FY23. During the quarter, 2,506 new projects with a total investment commitment of Rs 4,34,664.86 crore were announced as against 2,467 new projects worth Rs 5,46,673.78 crore announced in Q4/FY22.
A fall in the number of mega projects (cost of Rs 1,000 crore or more) was also one of the reasons that led to the decline in fresh capex in Q1/FY23. As against 82 mega projects worth Rs 3,47,016.76 crore announced in Q4/FY22, only 76 mega projects worth Rs 2,38,196.41 crore were announced in the latest quarter ended June 2022. New capex sans mega projects increased by a decent 17.7 percent on a Q-o-Q basis.
The Private sector announced 999 projects worth Rs 2,36,648.44 crore in Q1/FY23 as against 1,160 projects worth Rs 3,41,224.53 crore in Q4/FY22. This indicated a fall of 30.65 percent. On the other hand, the slippage in the government sector was limited to 3.62 percent. As against 1,307 new projects worth Rs 2,05,449.25 crore announced in Q4/FY22 the public sector units announced 1,507 new projects worth Rs 1,98,016.42 crore in Q1/FY23.
Sectoral analysis of fresh capex indicated sharp falls in fresh investment announcements in both the Manufacturing and Infrastructure sectors on a Q-o-Q basis. Last year’s capex revival was driven by these two sectors. While the Manufacturing sector was dominated by the Private sector, the Infrastructure sector was by the Central and State government agencies.
Manufacturing: Fresh investment in this sector decreased by 26.35 percent on a Q-o-Q basis. As a result, the share of the sector in total fresh capex decreased from 35.28 percent in Q4/FY22 to 32.68 percent in Q1/FY23.
Within the Manufacturing sector, the fall was noticeable in sub-sectors like Textiles, Basic Chemicals, Cement, and Metals. On the other hand, sectors like Electronics and Automobiles continued the growth registered in the last fiscal.
In the Electronics sector, a Rs 24,000 crore display fab project of Elest, a subsidiary of Rajesh Exports in Telangana was the most noticeable project. The company indents to manufacture AMOLED displays, Lithium-ion cells, batteries, and EVs in the proposed new unit. This was also the largest project announced in Q1/FY23.
In the Automobile sector, while in the Electric vehicles segment Causis E-Mobility, Hero Electric Vehicles and Biliti Electric announced mega projects; Suzuki Motorcycles and MG Motor India announced their capex plans to expand their manufacturing capacities. In the auto ancillaries sector, a Rs 4,100 crore powertrain parts project of Toyota Kirloskar Auto Parts in Karnataka was the most ambitious project. However, the largest project in the automobile project was taken up by the Indian Railways, which intends to set up a Rs 20,000 crore wagon production unit in Gujarat.
Mining: In the preceding two fiscals, the Mining sector had not seen any big investment proposals. The first quarter of fiscal 2023 saw reversal of the trend. During the quarter, 81 new mining projects worth Rs 23,138 crore were announced, indicating a growth of 83.98 percent when compared with the total fresh investment of Rs 15,800.64 crore announced in Q4/FY22.
A Rs 6,112 crore iron ore beneficiation plant of Aarti Steels, a Rs 3,281 crore oil and gas exploration project of ONGC and a Rs 3,472 crore coal mining project of Odisha Coal & Power were the notable mining projects announced in this quarter. Oil and Gas Corporation took up around 18 new oil exploration projects.
Electricity: Mostly aided by the four Pumped Storage Hydel power project of Adani Green Energy with a total investment commitment of Rs 15,725 crore and 32 new Solar power projects, new investment in the Electricity sector registered a growth of 83.98 percent on Q-o-Q basis.
A Rs 12,000 crore solar/wind power project of Ayana Renewable Power in Karnataka was the largest non-conventional power project announced in the quarter. The company inked an MoU with the state government in June 2022 to set up solar and wind power projects with a total capacity of 1,000 MW. Among the other developers, NLC intends to set up a Rs 5,000 crore, 1,000 MW project in Assam and the thermal power major, NTPC has announced two more mega solar projects with a total investment of Rs 4,500 crore. No new thermal power projects were announced in this quarter.
Infrastructure: Despite increase in the number of new projects, aggregate fresh investment announced in the Services & Utilities (Infrastructure) sector decreased by 32.36 percent in Q1/FY23. In all, 1,757 new projects worth Rs 2,08,592.07 crore were announced in Q1/FY23 as against 1,624 new projects worth Rs 3,08,378.05 crore were announced in the preceding quarter.
Baring Hospitals and Real Estate sectors all major sub-sectors recorded declines in fresh investment announcements on Q-o-Q basis.
Transport Services: Around 50 percent of the total investment planned in the Infrastructure sector is derived from this vital sector. All sub-sectors of the Transport Services sectors like Roadways, Railways, Airports, Ports and Power Distribution saw a sharp fall in new investment announcements. Barring, the Roadways sector (-20.67 percent) the fall in fresh investment in other sectors was steep and ranged between 80 and 95 percent.
In the Roadways, fresh investment came down from Rs 69,748.72 crore to Rs 55,334.01 crore in the latest quarter ended June 2022. The highest investor in this sector, National Highways Authority of India (NHAI) announced 27 new highways with a total investment of Rs 17,111.45 crore. In the preceding quarter, NHAI had announced 38 new highways worth Rs 31,584.43 crore.
The Q-o-Q falls in the Railways, Airports and Ports sectors were 80.44 percent, 94.23 percent and 81.71 percent respectively.
Construction: The sector comprising growth-driving sectors like Commercial Complexes, Industrial & Software Parks and Real Estate had posted a growth of 42.78 percent in the preceding quarter on a Q-o-Q basis. However, in the first quarter of FY23, the total fresh capex in this sector collectively declined by 35.83 percent. Contractions in fresh capex in the Commercial Complexes and Industrial Parks sectors were the main reason for the overall fall in fresh investment in this sector.
The growth trends witnessed in the Real Estate sector in FY22 continued in the first quarter of FY23 too. In all, 399 new projects worth Rs 47,735.39 crore were announced in this quarter against 330 new projects worth Rs 39,641 crore announced in the preceding quarter.
Irrigation: During fiscal 2022 not many large-size irrigation projects were announced. The lack of resources at the disposal of the state governments was one of the main reasons for the absence of large new irrigation projects. In all, 144 new irrigation projects with an aggregate investment of Rs 13,223 crore were announced in the four quarters of FY22. Against this, the first quarter of the current fiscal saw 76 new irrigation projects with a total outlay of Rs 15,893 crore being announced.
Narmada Valley Development Authority announced seven new irrigation projects entailing a total investment of Rs 10,338.53 crore in Madhya Pradesh and accounted for around two-thirds of the total fresh investment announced in the irrigation sector.
Telangana on Top
Among the Indian states, Telangana, Karnataka and Gujarat each managed to attract fresh capex of Rs 50,000 crore or more during the first quarter of FY23. These three states together accounted for around 38 percent of the total fresh capex announced in this quarter.
Elest’s mega proposal of Rs 24,000 crore to set up an electronic project helped Telangana to be the number one state in attracting fresh investment. In all, the state saw launching of 164 new projects worth Rs 56,301.67 crore during Q1/FY23 and cornered around 13 percent of the total fresh capex announced during the quarter. Besides the mega electronic project, the state also attracted four mega Real Estate projects worth Rs 6,069 crore.
Another southern state, Karnataka ranked second by attracting 240 new projects with a total investment commitment of Rs 54,052.60 crore. The 13 new mega projects planned in the state were spread across diverse sectors like Solar Power, Automobiles, Real Estate, Food Processing, Steel, Roadways, etc. The largest new project planned in the state was a Rs 12,000 crore, 2,000 MW Solar cum Wind power project of Ayana Renewable Power.
The traditional toppers Gujarat and Maharashtra had to settle for the third and fourth positions respectively. Gujarat attracted the second largest mega project of the quarter, a Rs 12,000 crore Electric Locomotives Factory at Dahod of Indian Railways. In all, 230 new projects worth Rs 53,946.57 crore were announced in the state. The fourth ranked Maharashtra attracted 448 new projects with a total investment commitment of Rs 38,273.61 crore.
Projects Today believes that the setback seen in the announcement of fresh capex during the first quarter of the current fiscal will be reversed in the short term and growth registered in the last fiscal will continue in the second half of the current fiscal.
The positive indicators which augur well from the point of view of project investment are the increase in bank lending to corporates and the demand pickup seen in the Automobile, Electronics, and Real Estate sectors. Further, time and again, the central government has reiterated its commitment of executing the 7,000 plus NIP projects as per schedule to ensure adequate infrastructure facilities are put in place for private investors to ground their projects.
Though in the short term, private sector might adopt a wait and watch policy, the country will see increased private capex commitments in the second half of the current fiscal.