The Centre for Monitoring of Indian Economy, an economic research firm, has estimated that investment plans worth Rs 1,70,000 crore (Rs 1,700 billion) were either deferred or shelved by India Inc in the three months ended December 2008 because of the ongoing financial crisis, which led to fall in commodity prices, tighter liquidity and muted demand in domestic as well as overseas markets.
"While the amount of shelving and deferring of investments has gone up this year, the same has not risen as a proportion of outstanding investments," said a CMIE release.
The research firm also expects sales growth of Indian companies in the quarter under consideration to remain muted. According to the CMIE, sales growth is expected to fall to 20 per cent from 34 per cent in the quarter ending September 2008.
In addition, Indian firms will see 33.1 per cent shaving off of net profits in the quarter ending December because of more than proportionate increase in expenses.
"While the manufacturing sector is likely to grow by a slower 16.8 per cent, non-financial services sector is expected to maintain its growth rate of around 30 per cent. Construction and banking sectors are expected to grow by 39.6 per cent and 25 per cent, respectively, during the December quarter," said the release.
The ripple effects of the ongoing global liquidity crisis has also been seen in India, with banks and financial institutions becoming risk-averse and lending lesser to industry.
On its part, the government has announced two fiscal stimulus packages since December 2008, while the Reserve Bank of India has slashed repo rate (the rate at which it lends to banks) by 3.5 percentage points to 5.5 per cent since October last year.
Taking note of these synchronised efforts of the government and the central bank, the CMIE said, "The governments also increased investments in the last two quarters.
Thus, besides the visible efforts of announcing the stimulus package, the government is also trying to give an impetus to the economy by way of increasing its capital expenditure.
Increased capex by the government together with lower commodity prices and softening of interest rates is likely to result in a sharp recovery in profits during the March 2009 quarter."
The CMIE also noted that a more than proportionate rise in expenses incurred on inputs like raw material as well as interest as compared with sales will lead to a 10.3 per cent fall in profit before depreciation, interest and tax of Indian companies.
