Growth deceleration that began last fiscal year, when GDP growth slipped to a nine-year low of 6.5%, has been led primarily by a near 50% in new investments in large projects, the Reserve Bank has said.
“Envisaged total fixed investment by large firms in new projects, which were sanctioned financial assistance during FY12, dropped by a whopping 46% to about Rs 2.1 trillion from Rs 3.9 trillion a year ago,” according to the FY’12 RBI annual report.
The drop was led by the infrastructure and metals sectors, said the recently released report.
“Envisaged investment in infrastructure declined by 52% to Rs 1 trillion in FY12 from Rs 2.2 trillion in FY11, led by the power and telecom sectors,” said the report, quoting data collated from banks and financial institutions.
While investment in the telecom sector has dried up, that in roads, ports and airports has also decelerated sharply, it added.
Gross bank credit to infrastructure outstanding as of April 2012 was Rs 6.2 trillion. However, the flow of bank credit to the sector has decelerated, on the back of policy delays and higher interest rates, the report noted.
Data on sector-wise gross deployment of bank credit shows that its year-on-year growth has declined to 14% in FY’12 compared to 38% growth in FY’11.
Noting that over half of the envisaged corporate fixed investment in large projects has been coming from the infrastructure space since 2008-09, the report said, its share, however, dropped to 48.6% in FY12 from a high 54.8% a year ago. This massive slippage has had a ripple effect on the economy. Order books of capital goods producing firms have declined as the size of the pie has reduced. Their share has also gone down as they have been out-competed by cheaper imports by foreign firms, points out the report.
In addition, investment climate in the power sector has been affected by rising losses of public sector utilities.