India’s corporate investments have hit a 13-year low

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Image: Reuters/Adnan Abidi
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India Inc may be all praise for the Narendra Modi government’s policies, but it won’t bet any money on them.

Between October and December 2017, corporate investment in Asia’s third-largest economy slipped to its lowest level in nearly 13 years. This comes at a time when the latest manufacturing indicator—the Nikkei purchasing managers’ index (PMI)—has hit a five-year high. Even core sector growth is at a 13-month peak and the country’s GDP has bucked five quarters of decline, but no thanks to private investors.

New private projects plunged to around Rs77,000 crore, just a third of what it was a year ago, data from the Centre for Monitoring Indian Economy, released on Jan. 02, showed. Even the number of projects and their pace of completion have slowed down alarmingly.

Only 1,721 projects with investments worth Rs4 lakh crore were flagged off in April to December 2017, less than half of what it was a year earlier.

With a month to go for union budget 2018, this is depressing data for finance minister Arun Jaitley, who has gone from his early winks and nudges to now openly prodding corporates into supporting the government in job creation.

“Power, telecom, steel, and oil and gas are the largest contributors to capital expenditure (capex) growth. Out of this, capex growth in power and steel sectors has been affected and that is possibly dragging down the investment growth,” explained Vivek Jain, associate director at India Ratings and Research, a credit rating firm.

Public investment has been the biggest growth driver for the Indian economy, which is into the fourth year of Modi’s tenure as prime minister. Private investor sentiment has struggled to recover from the blow from demonetisation and the introduction of the goods and services tax (GST) within a few months of that.

However, analysts are optimistic. ”These (demonetisation and GST) were transient phenomena, and demand and capacity addition are expected to improve in the coming quarters,” Jain said. “So, hopefully, the next quarter will be better.”

While overall economic growth seems to be improving, the Modi government will need more than just empty accolades from India Inc to keep up the momentum.