Have investments perked up?
The gross fixed capital formation rate, the proxy indicator for investments at the economy level, has witnessed an improvement from 28.8 per cent to 29.2 per cent respectively, in the first two quarters of the year. In the first half of FY19, it stood at 29 per cent compared to 28.3 per cent in H1-FY18 - showcasing some encouraging results. A detailed analysis by CARE Ratings looks whether this is evenly spread across the private and government sectors and whether the capacity utilisation rates have improved, to indicate further investment taking place in the manufacturing sector. The contribution of the government can be best explained by the expenditure patterns witnessed so far on the capex front. Overall capex in the first seven months of the year of the government was Rs 1.77 lakh crore as against Rs 1.62 lakh crore last year. Clearly, the government has been proactive on this front with its contribution to investment. The above four sectors accounted for Rs 1.43 lakh crore or 80 per cent of total capex incurred so far this year. It does appear that government expenditure has been on track so far, highlights the report. For private investment, one can look at the growth in capital goods sector so far as per the IIP. Higher growth in this segment would be indicative of demand for investment goods, adds the report. IIP growth for the first seven months of the year indicates that capital goods cumulatively increased by 8.6 per cent compared with 0.7 per cent last year. If the same were to be looked at from the point of view of machinery, we see a similar picture. Electrical machinery on a cumulative basis (Apr-Oct) increased by 3.8 per cent (-15.7 per cent) and non-electrical by 7.3 per cent (3.9 per cent). In case of capacity utilisation there are signs of improvement in the rate which peaked in March 2018, as per RBI data. It had decreased to 73.8 per cent in quarter ended June, 2018 and needs to be observed closely in the next two quarters. Normally a rate of 78-80 per cent would indicate urgency in furthering investment. The capacity utilisation rate has been less than 72 per cent for quite some time now. There was a pick up post GST implementation last year in Q3 and Q4 of FY18. Hence, it remains to be seen if the last number of 73.8 per cent will be maintained or increased. The number of investment proposals as per IEMs that were put forward between January and October 2018 were 1,745, which is higher than that last year during the same time (1642). However, the investment volume involved is slightly lower at Rs 3.42 lakh crore as against Rs 3.49 lakh crore last year. These are only intentions, which may not be realized to the full extent and will be spread across years. The data above shows once again that the intentions by way of announcements have been positive in terms of a larger volume being reckoned as has been the case with the investment revived during this period. However, the investment dropped has increased. There is hence a mixed picture here. A quick analysis of the various investment parameters, both in absolute terms and intentions indicate that there has to some extent been a revival in the investment climate in the economy. There has been an improvement in gross capital formation in the first two quarters of current financial year, driven by higher government capital expenditure and significant growth in cumulative However, from the government expenditure front, going forward higher capital expenditure needs to be closely monitored as the government aims to achieve the fiscal deficit target of 3.3 per cent set for the fiscal.