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How are investments looking?
Dec 2, 2008

According to various estimates and studies, Indiaís GDP is expected to grow at a rate of 6.5% by taking the most conservative approach. Considering the global status quo, it is not bad at all by any standard. Being relatively better off as compared to its global counterparts, the investments in India have been growing strongly over the past few years. However, due to the global economic downturn, the investment trend has relatively slowed down in the year till date.

In this article, we are attempting to give you an idea on how the overall investment trend has changed over the past few years in general, and quarters in particular. According to CMIEís (Centre for Monitoring Indian Economy) CapEx survey, most of the projects continue to remain on track and are likely not to be disrupted by the slowdown. However, projects in their initial stages have the possibility of being deferred.

The tables below depict the investment scenario prevailing in the country.

Current investment scenario

Rs bn Projects under implementation Total investment
Quarter Nos Amount Avg size Nos Amount Avg size
Sep-05 5,374 14,647 2.7 9,762 23,342 2.4
Dec-05 5,395 15,016 2.8 9,977 26,384 2.6
Mar-06 5,439 15,499 2.8 10,217 27,437 2.7
Jun-06 5,549 16,498 3.0 10,622 30,008 2.8
Sep-06 5,926 18,958 3.2 11,465 35,691 3.1
Dec-06 6,206 20,639 3.3 12,490 39,831 3.2
Mar-07 6,520 21,725 3.3 12,721 42,335 3.3
Jun-07 6,840 22,687 3.3 13,058 44,619 3.4
Sep-07 7,024 23,771 3.4 14,144 48,860 3.5
Dec-07 7,148 24,718 3.5 14,643 53,719 3.7
Mar-08 7,368 26,921 3.7 15,147 59,663 3.9
Jun-08 7,455 29,476 4.0 15,471 66,390 4.3
Sep-08 7,620 32,813 4.3 15,835 72,447 4.6
Source: CMIE

As we can see from above mentioned table, investments have remained strong over the past three years. As compared to September 2005, the total numbers of projects have increased by 62% by September 2008. Further, the total values of these projects have increased by a massive 210%. The average size per project has also increased to Rs 4.6 bn from Rs 2.4 bn three years back. On the other hand, the number of projects under implementation has increased by 42% over the period of three years, while their values have increased by 124%.

While this was the overall picture, we will now focus on how things have been looking in the past few quarters.

Project execution details

Rs bn New projects Projects completed Projects shelved
Quarter Nos Amount Avg size Nos Amount Avg size Nos Amount Avg size
Sep-05 549 1,779 3.2 112 102 0.9 3 4 1.4
Dec-05 535 2,859 5.3 281 488 1.7 10 60 6.0
Mar-06 582 1,350 2.3 318 322 1.0 5 130 25.9
Jun-06 740 2,320 3.1 146 213 1.5 6 144 23.9
Sep-06 1,121 5,741 5.1 160 339 2.1 16 99 6.2
Dec-06 1,366 3,044 2.2 240 420 1.7 12 23 1.9
Mar-07 503 2,170 4.3 220 464 2.1 16 107 6.7
Jun-07 526 2,574 4.9 168 233 1.4 21 225 10.7
Sep-07 1,213 4,289 3.5 152 488 3.2 19 119 6.2
Dec-07 700 4,502 6.4 218 405 1.9 46 406 8.8
Mar-08 656 4,872 7.4 129 273 2.1 40 182 4.5
Jun-08 507 5,316 10.5 106 408 3.9 52 427 8.2
Sep-08 570 5,283 9.3 78 398 5.1 45 338 7.5
Source: CMIE

From the above table, we can clearly notice the effects of the liquidity crunch and subsequently the economic slowdown. While the investment inflow towards new projects has been stable, the sour state can be viewed from the other two indicators i.e. projects completed and projects shelved.

Investment inflow has continued to remain strong, both in terms of total value and total number of projects. And so has the average size of projects. However that was the case till the end of September 2008. According to CMIE, fresh investment worth Rs 1,600 bn have been announced during the period October to mid November 2008. This is lower than flow of fresh orders in the preceding quarters.

Apart from the inflows, itís the completed and shelved project list that has caught our attention. We can notice that the rate of project completion has decreased significantly since the beginning of the year. Even if we compare it on a year on year basis, we can see that the project completion rate has relatively slowed down. In terms of shelved projects, the liquidity crunch has clearly impacted the India Incís investment decisions. There have been nearly 137 projects that have been shelved in the year till date. This is in stark contrast to the 102 projects that were shelved in the whole of 2007.

Conclusion
Investments in India have continued to remain strong in the last five years. However, looking at the above tables, we can notice that there is a mixed scenario. The slowdown and liquidity crunch has impacted the investment scenario in the year till date. While on one hand the investment inflows trend continues to remain stable, the number of projects being shelved has been increasing as well. In addition, the project completion rate has also turned slow. We expect the scenario to remain similar going forward, wherein the project completion rate will remain dull. As mentioned earlier, the number of projects being shelved could be on the rise as well. However, this will be the case mainly towards projects in their initial phase.

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