On Aug. 5, India’s commerce and industry minister, Nirmala Sitharaman, announced the latest foreign direct investment (FDI) data with some satisfaction.
Last fiscal, India received $30.9 billion (Rs1.96 lakh crore) in FDI equity flows—a 27% increase compared to the previous year. Some 64% of that came from the dozen countries that prime minister Narendra Modi visited last year.
And while these numbers look great, it may be too early to celebrate.
For one, the 27% increase in FDI is the result of a low base. The investments last fiscal are not much more than what India received in 2008 when the global economy was in the doldrums.
Moreover, compared to the rise in foreign inflows, a pick up in domestic investments is still far away.
Credit rating agency CRISIL said last week that an analysis of capital investments across 22 sectors shows that investments continue to drop and the current fiscal would see a 2% decline.
“What’s more worrying is that private investments—on skid row since the last couple of years—are expected to decline another 8% this fiscal,” CRISIL said in a research report.
The main reason for this subdued investment activity is low capacity utilisation across sectors. Capacity utilisation is a measure of the output of an installed facility. A 100% utilisation rate means the output is at the optimum level.
The utilisation rates in 10 out of 12 large industrial sectors are at 5-year lows, according to CRISIL. This is, in turn, drying up new project announcements, with a recovery in capital investments only expected in 2017.
Here is the current capacity utilisation for some of the major sectors.
Simultaneously, companies in the core sectors like steel and infrastructure still have huge debts on their books.
“Most Indian companies in the core sectors still have very high debt levels so their ability to access substantial amount of debt for new projects is limited,” Deep Mukherjee, a senior director at India Ratings and Research, a unit of Fitch Ratings, told Quartz.
Meanwhile, most of the FDI is going to sectors like information technology and financial services, which haven’t stalled quite as badly compared to areas like infrastructure, steel, and power. For instance, in the 2015 fiscal, 17% of the total FDI went to the services sector while 9% was absorbed by the infrastructure space.