Projects Investment Survey: June 2008

In the first week of July 2008, ProjectsToday conducted its 31st quarterly Projects Investment Survey. The Survey encompassed 25,399 projects entailing a total investment of Rs.34,25,428 crore (Rs.34.25 Trillion or USD 878 billion).
 
Impressive growth on Y-o-Y basis in outstanding projects investment across sectors; slight fall in project implementation ratio; increasing share of private investors in total investment and emergence of Andhra Pradesh and West Bengal as prominent investment destinations were the key findings of the latest Survey. In short, the Survey reveals Indian private companies confidence of reaping decent returns on their investments in the long term.
 
As of June 2008, there were 25,399 projects in various stages of implementation entailing a total investment of Rs.34,25,428 crore. Of this, 10,955 projects worth Rs.14,58,988 crore were under execution.
 
The project implementation ratio, which stood at 44.5 per cent in June 2006 and 44.9 per cent in June 2007 slipped nearly two percentage points to 42.6 per cent in June 2008. Surge in fresh investment proposals which included a number of high ticket projects during the 12 months period ended June 2008 pulled down the overall implementation ratio. The fall was seen across the sectors except the Services & Utilities sector, where the ratio improved from 43.6 per cent in June 2007 to 44.6 per cent in June 2008.
 

Projects Investment by Sectors
 
The 35.4 per cent increase in the overall outstanding projects investment over July – June 2007-08 was largely driven by the Manufacturing sector. While Manufacturing and Electricity sectors improved their growth rates as compared with June 2007 levels, Mining and Irrigation sectors staged a turnaround in investment with impressive growth rates of 21.8 per cent and 23.9 per cent respectively against Y-o-Y declines a year ago.
 
Projects investment in the Services & Utilities sector increased remarkably by 23.9 per cent from a mere 3.8 per cent growth recorded in June 2007.

Manufacturing
 
Since June 2004, the Manufacturing sector has become the growth driver in project investments in India. It continued its torch bearer’s role during the year ended June 2008 also with a whopping growth of 52 per cent in total investment. As of June 2008, there were 3,245 projects entailing a total investment of Rs.8,51,239 crore. The sector, where bulk of the investment is by the private sector, accounted for around one-fourth of the total investment underway in India. During the 12 months ended June 2008, the sector attracted 1,623 new projects worth Rs.2,82,296 crore.
 
Within the Manufacturing sector, Food processing, Paper, Cement, Steel, Aluminium and Automobiles sectors attracted increased investment during the Survey period. On the other hand, Textiles, Petrochemicals and Fertilisers sectors saw subdued investment activities.
 
Mining
 
After two years of lackluster performance, the Mining sector saw total investments increasing by 21.8 per cent during the year ended June 2008. Revival in investment activities by Coal India and huge investment commitments by ONGC, Reliance and Essar in Oil & Gas exploration helped the sector to post healthy growth in overall investments.
 
Electricity
 
Announcement of 199 new thermal power projects worth Rs.1,73,976 crore during the 12 months period ended June 2008, helped the power sector to post a healthy growth of 42.6 per cent during the Survey period. Around 30 large thermal power projects each with investment outlay of over Rs.1,000 crore were announced during the last 12 months. Most of these projects were by private developers.
 
As of June 2008, with 1,381 projects entailing a total investment of Rs.11,15,797 crore the sector accounted for nearly one-third of the total investment planned in the country. Indicating the slow progress of power projects from the drawing board to executing stage the project implementation ratio slipped slightly from 37.4 per cent in June 2007 to 37.1 per cent in June 2008.
 
Services & Utilities
 
During the Survey period the total investment in the Services & Utilities sector surged by 23.9 per cent. As of June 2008, the sector with 19,321 projects worth Rs.11,82,783 crore accounted for nearly 36 per cent of the total investment planned in the country. Further, during the twelve months period ended June 2008, the sector attracted 6,461 new projects worth Rs.2,00,858 crore.
 
Increased investment commitments by private companies in hotels, hospitals, airport infrastructure, real estate, commercial complexes and industrial parks helped the sector in posting a high growth rate. Government agencies were active in sectors like roadways, railways, water supply schemes and community services sectors.
 
Lack of transparent policies slowed down investment activities in the shipping infrastructure. Similarly, delay in allocation of 3G Spectrum also delayed the execution of investment plans of telecom players.
 
Irrigation
 
Launching of new large irrigation projects by Andhra Pradesh, Maharashtra and Karnataka saw total investment in the irrigation sector increase by 17.4 per cent as of June 2008. The Rs.17,875 crore Pranahita-Chevella Lift Irrigation Scheme of the Andhra Pradesh government was the largest irrigation project launched during the year ended June 2008. The ambitious project will irrigate 12,20,200 acres of land and supply drinking water to Hyderabad and Secundarabad.
 

The scenario seems to have changed since June 2006. The share of private sector inched up to 36 per cent in June 2006 and to 40.3 per cent in June 2007. This improvement was largely due to a number of mega steel, aluminium and thermal power projects announced during this period. The upward march continued during the current Survey period also and the share touched a new high at 45.8 per cent. If the investment environment remains conducive it won’t be long before the private sector becomes the dominant player in India’s project investment canvas.
 
As of June 2008, there were 10,029 private sponsored projects entailing a total investment of Rs.15,68,651 crore. Unlike the earlier years when private sector capacity build up was seen mostly in the manufacturing sector, now they have expanded their investment scope to Power and Infrastructure sub-sectors like building airports, roadways, shopping malls, commercial complexes, etc.
 
Projects Investment by States
 
Maharashtra has retained its premier position on India’s projects investment canvas, both in terms of number of projects as well as in terms of total investment. The state has attracted around 10 per cent of the total investment planned in the country. In June 2007, the state’s project implementation ratio had dipped to 46.5 per cent from 52.1 per cent in June 2006. However, during the current Survey period, despite 28 per cent increase in total investment the state’s implementation ratio improved to 51.6 per cent reflecting faster execution of projects in the state.

The steel rush of 2004 and 2005 helped Orissa to gain a toehold in the “Top Five” league of investment destinations. The state retained its second position in June 2008 though total investment in the state expanded by just 9.2 per cent against the national average of 35.4 per cent. Most of the steel projects announced in mid-2000 have not reported any noticeable progress in their execution. If the State fails to expedite these projects it will not only fail to enlist new investment commitments from private companies but might loose even the existing ones.
 
Gujarat maintained its third position with a share of 8.2 per cent in India’s total projects investment as of June 2008, with 1,185 projects worth Rs.2,80,682 crore. Like Maharashtra, Gujarat also enjoys a decent project implementation ratio. As a result, it topped the list of states in terms of projects completed in the last five years (see Top Five States section).
 
Andhra Pradesh and West Bengal replaced Karnataka and Tamil Nadu in the Top Five league. Outstanding projects investment in Andhra Pradesh increased by 97 per cent and in case of West Bengal by 99 per cent during the year ended June 2008. Both states saw announcement of large steel and power projects by private investors. 
 
Outlook
 
The 53.8 per cent increase in investment intentions by private companies during the year ended June 2008 augurs very well for projects investment in India. This indicates the confidence of private players (including foreign companies) in the capacity of the country to sustain the high growth it has recorded in the recent years.
 
The recent economic developments like high inflation, dear money and increase in the cost of projects inputs have raised doubts about the continuation of the buoyancy we have seen in projects investment in the past few years. Though not many promoters have openly announced halting or postponement of their investment plans, in the short run projects investment might see some slow down. However, the long-term prospects still look bright.
 
At this point of time, ProjectsToday though would not like to confirm an imminent slow down in the investment activities would like to adopt a cautious optimism stand on the short-term projects investment scenario. The long-term outlook still looks pretty good.
 
At this critical juncture, to keep the projects investment tempo going, the government agencies should continue the infrastructure building activities intact.
 
Source: www.projectstoday.com