Investment cycle appears to be poised to gain momentum going ahead: RBI

The investment cycle appears to be poised to gain momentum going ahead, going by the project investment plans and the envisaged total cost of the projects financed by lenders, according to an article in the Reserve Bank of India’s latest monthly bulletin. However, its sustainability needs to be watched closely.

Overall, investment plans of 982 projects were made during 2022-23, with record capital outlay of Rs. 3,52,624 crore – higher than the level (Rs. 1,45,658 crore) seen since 2014-15, as against 791 projects in 2021-22 with investment intentions of Rs. 1,96,445 crore, per the article “Private Corporate Investment: Performance and Near-term Outlook”.

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Of the total capital investment during 2022-23, about 40 per cent is expected to be spent in 2023-24.

The envisaged total cost of the projects financed by banks/financial institutions reached a new peak during 2022-23 since 2014-15, RBI officials said in the article. 

About 547 projects got assistance from banks/FIs during 2022-23 with a record high total project cost of Rs. 2,66,547 crore, compared to 401 projects having a total project cost of Rs. 1,41,976 crore during 2021-22,

In 2014-15, the number of projects that got assistance from banks/ FIs stood 326, with a total project cost of Rs. 87,253 crore.

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“A sustained pick-up in bank credit in recent period, rising capacity utilisation, improved business outlook and demand conditions and various government policy initiatives to support investment activities provided a conducive environment for the private corporates to undertake fresh capital all India investment.

“…A long-term analysis points to the usefulness of investment intentions of private corporates as an early indicator of the assessment of private capex,” RBI officials Shreya Bhan, Rajendra N Chavhan and Rajesh B Kavediya said in the article.

The authors noted that the infrastructure sector continued to attract maximum capex projects, led by ‘Road & Bridges’ and ‘Power’ sectors, reflecting the Government’s push towards infrastructure development.

The phasing profile of the envisaged capex, based on the pipeline projects finance through all three channels (banks and FIs; external commercial borrowings [including issuance of foreign currency convertible bonds, rupee denominated bonds]; and initial public offerings, follow-on public offerings and rights issues, suggests that the envisaged capex increased significantly to Rs. 1,71,568 crore in 2023-24 as against Rs. 94,876 crore in 2022-23.

Further, empirical analysis underscored the usefulness of envisaged capital investment (ex-ante phasing plan) as an early indicator for assessing the near-term private corporate investment outlook, the authors said.

Improved capacity utilisation, pick-up in credit demand, and improved business expectations, as reflected in forward-looking enterprise surveys conducted by the RBI and also by other agencies, are pointing towards reinvigoration of investment activity in the Indian economy in the period ahead, the authors said.

On the downside, the higher cost of capital owing to tightening of monetary policy by various central banks including India, global uncertainty led by geo-political tensions, and risk of slowdown in major advanced economies could hamper investment activities, they added.