3 Private sector investment activity continues to disappoint
One of the biggest debates around the ongoing economic recovery is whether it is just pent-up demand. This is an important question as far as medium-term GDP growth and per capita income levels are concerned. Most high frequency indicators suggest a robust sequential recovery in production. The Nomura India Business Resumption Index (NIBRI) reached 98.1 (against a pre-pandemic base of 100) in the week ending February 14.
However, investment activity, which is a crucial determinant of future growth and a key indicator of business sentiment regarding future demand, continues to disappoint. Centre for Monitoring Indian Economy’s (CMIE) database on investment projects – it is among the most widely used investment activity trackers in India – shows that not only did new project announcements continue to fall, they have been falling at a greater pace.
The CMIE database also shows that value of abandoned investment projects increased on a year on year basis in the quarter ending December 2020, a first since June 2019. New investments announcements have fallen by ₹3.38 lakh crore and ₹2.74 lakh crore for the private and government sector respectively in the quarter ending December 2020. This trend is in keeping with the contraction in index of eight core sector industries in December 2020, even though the Index of Industrial Production grew by 1%.