New Delhi, Sept 1: Announcements of new investments have fallen in the country during the country April-June period by more than 50% from Rs 71.4 lakh crore in 2010 to Rs 32.5 lakh crore in 2011. High interest rates, policy uncertainty and decline in demand have resulted such a sharp down-fall.
As per the data from Centre for Monitoring Indian Economy (CMIE), the number of new projects announced too have declined by over 19%. In 2010, during the between April-June 1,240 projects were announced. In 2011 for the same period, there are 1,003.
The massive decline is in sharp contrast to the government estimates. The latest numbers provided by the government instead show a revival in investment.
The numbers by CMIE show not only a decline in manufacturing sector, services too have been affected. In fact, the decrease is higher in case of the services sector, which does not include segments such as banking and insurance.
Little or no growth in investment also does not augur well for future growth and employment generation.
One of the possible reason for this slowdown in announcement could be the high order-book by nearly all companies. Will so many orders yet to be completed perhaps the companies are going slow on the economy.
For automobiles sector, companies announced expansion plans in late 2009 and 2010 when capacity utilization was high. The investments are still in pipeline but demand pressure has eased due to higher interest rates and rise in costs.
For other industry segments where the overall capacity is more than the demand, like Cement, investment announcements declined 83% to Rs 30,000 crore in 2011. The same was at Rs 1.8 lakh crore in April-June 2010.
Some analysts feel that the governments inability to implement reform has caused this slowdown.
Electricity sector saw sharp fall in investment announcements as it fell 48% to Rs 9 lakh crore during April-June this year. The same was Rs 23 lakh crore in 2010. For a country where there is severe shortage of power this is bad news.
The mining sector has been in the limelight for lack of environment clearance controversy and exploitation cases declined 20.6% to Rs 48,550 crore.
RBI believes that the current trend in investments can slow down as interest rates will remain high since its priority is to control inflation.