Investment slide to continue, says CRISIL

Barring fertiliser & automobiles, recovery not before FY17

Despite the government's push, investments are likely to decline by two per cent in all but of two of 22 major sectors studied by ratings agency CRISIL this financial year.

The exceptions are automobiles and fertiliser, it said.

Private investments, down for two years, are likely to decline another eight per cent in 2014-15.

Among the other sectors it studied were coal mining, ports, national highways, renewable energy, irrigation, urban infrastructure, cotton yarn, sugar, power (transmission and distribution), oil & gas, telecom, steel, cement and oil refining.

CRISIL said utilisation rates of capacities in 10 of 12 large industrial sectors were at five-year lows, causing new project announcements to stop. “Consequently, fresh investments -- projects announced or awarded in past one year -- are expected to account for a mere 20 per cent of total investment,” it said.

A meaningful recovery in capital investment will only be visible from 2016-17, when it expects a seven per cent increase.

Industrial capital expenditure, close to 30 per cent of aggregate capital investment, is expected to decline 16 per cent this financial year, mainly due to low utilisation rates.

For instance, in metals, particularly steel and aluminium, India created surplus capacities in recent years

and is turning into a net exporter from being a net importer. “In addition, refining & marketing and petrochemicals are also being affected due to the global decline in commodity prices,” the report said.

On the other hand, infrastructure investments will grow at a moderate four per cent, helped by favourable policy changes and higher budgetary allocations. In its latest budget, the government raised the allocation for infra by 50 per cent.

CRISIL says power generation, aluminium, steel, cement and refining & marketing are holding back. Urban infrastructure, national highways and renewable energy are preventing a bigger decline in overall investment.

It is automobiles and fertiliser where CRISIL expects investment to see a healthy increase. “In the case of fertiliser, private announcements have increased after a long lull, as the new urea investment policy provides a higher upside to project returns. For automobiles, especially the passenger car segment, the demand outlook has improved with a drop in fuel prices and interest rates,” the report said.

While the government is pushing to improve infra creation, private participation remains lacklustre, with the poor financial health of infra developers and construction companies the limiting factor, says CRISIL.

“Average gearing for infra and construction companies has doubled in the past five years to 2.2 times as of March 2015. At the same time, their interest coverage has come down to about 1.9 times in 2014-15 from 5.6 times in 2010,” it said.