News: Indian capital investment boom to continue
(DNA 15/08/2006) New Delhi - Could an end to crippling power constraints be in sight? Possibly, going by the huge investments flowing into the power sector.
Notwithstanding policy hurdles - often blamed for hampering investments in the sector - capital investment in the power sector saw a 184% surge - from Rs 12,419 crore in 2004-05 to Rs 35,358 crore in 2005-06.
The services sector is also gearing up for big time action, with plans to build more hotels, hospitals and entertainment centres.
Capital investment in the services sector is set to vault 268% - from Rs 6,455 crore in 2004-05 to Rs 23,810 crore in 2006-07.
Confirming a trend hinted at by the hearty growth in the capital goods sector for three years running, a Reserve Bank of India study on corporate investment notes that there is an investment boom happening. Capital investment planned by companies saw a 43% increase between 2004-05 and 2005-06 (see table). The investments will be spread over seven years - 2004-05 to 2010-11.
The trend will be sustained in 2006-07, the study predicts, making this the longest capital expenditure cycle in Indian industry's history.
Though investment levels in 2006-07 are expected to remain high, growth will be a tad subdued, the study says, partly due to cyclical factors and partly due to uncertainties over oil and commodity prices. Going by projects sanctioned financial assistance in 2005-06, capital investment planned in 2006-07 is estimated at Rs 60,427 crore, which could be higher when fresh capital expenditure in this financial year is added.
With more factories, roads, storage capacities, power plants, hotels and hospitals set to be built, the construction sector appears to be on a roll, with planned capital investment seeing an unheard of (even allowing for a very low base) 954% surge - from Rs 275 crore in 2004-05 to Rs 2,899 crore in 2005-06.
Nevertheless, the sector accounts for just around 2% of investments. The infrastructure sector accounts for the biggest share of the pie - 31.6% of investments. Within that, power accounts for the largest chunk of 26.3%.
The engineering sector may have put the most money on the table - it accounts for 17.6% of total investment - but investments have actually seen a decline between 2004-05 and 2005-06, except in the electrical equipments industry. Planned investments in that sub-segment have risen 119% between 2004-05 and 2006-07.
Shrugging off doomsday predictions about how the end of the textile quota regime will mean the decline of the Indian textile industry, that sector has stepped up investments by a robust 88%.
And where is all this action going to be concentrated? Predictably, in the industrialised states. Maharashtra, Gujarat and Tamil Nadu are the top three investment destinations, cornering 47.5% of the planned investments. Maharashtra tops with Rs 26,947 crore worth of sanctioned projects (20.1%).
In spite of Buddhadeb Dasgupta's investor-friendly policies, West Bengal accounts for a mere 1.9% of the investments, way behind Uttar Pradesh (7.8%) and Himachal Pradesh (7%).
But amid all the euphoria, a note of caution. Investments can get curtailed dramatically and fresh expansion can get guillotined, warns Pronab Sen, principal adviser, Planning Commission. Remember, private investments grew at close to 40% in the mid-1990s, but that didn't stop the slump in industry when demand couldn't sustain the increase in capacities.
Notwithstanding policy hurdles - often blamed for hampering investments in the sector - capital investment in the power sector saw a 184% surge - from Rs 12,419 crore in 2004-05 to Rs 35,358 crore in 2005-06.
The services sector is also gearing up for big time action, with plans to build more hotels, hospitals and entertainment centres.
Capital investment in the services sector is set to vault 268% - from Rs 6,455 crore in 2004-05 to Rs 23,810 crore in 2006-07.
Confirming a trend hinted at by the hearty growth in the capital goods sector for three years running, a Reserve Bank of India study on corporate investment notes that there is an investment boom happening. Capital investment planned by companies saw a 43% increase between 2004-05 and 2005-06 (see table). The investments will be spread over seven years - 2004-05 to 2010-11.
The trend will be sustained in 2006-07, the study predicts, making this the longest capital expenditure cycle in Indian industry's history.
Though investment levels in 2006-07 are expected to remain high, growth will be a tad subdued, the study says, partly due to cyclical factors and partly due to uncertainties over oil and commodity prices. Going by projects sanctioned financial assistance in 2005-06, capital investment planned in 2006-07 is estimated at Rs 60,427 crore, which could be higher when fresh capital expenditure in this financial year is added.
With more factories, roads, storage capacities, power plants, hotels and hospitals set to be built, the construction sector appears to be on a roll, with planned capital investment seeing an unheard of (even allowing for a very low base) 954% surge - from Rs 275 crore in 2004-05 to Rs 2,899 crore in 2005-06.
Nevertheless, the sector accounts for just around 2% of investments. The infrastructure sector accounts for the biggest share of the pie - 31.6% of investments. Within that, power accounts for the largest chunk of 26.3%.
The engineering sector may have put the most money on the table - it accounts for 17.6% of total investment - but investments have actually seen a decline between 2004-05 and 2005-06, except in the electrical equipments industry. Planned investments in that sub-segment have risen 119% between 2004-05 and 2006-07.
Shrugging off doomsday predictions about how the end of the textile quota regime will mean the decline of the Indian textile industry, that sector has stepped up investments by a robust 88%.
And where is all this action going to be concentrated? Predictably, in the industrialised states. Maharashtra, Gujarat and Tamil Nadu are the top three investment destinations, cornering 47.5% of the planned investments. Maharashtra tops with Rs 26,947 crore worth of sanctioned projects (20.1%).
In spite of Buddhadeb Dasgupta's investor-friendly policies, West Bengal accounts for a mere 1.9% of the investments, way behind Uttar Pradesh (7.8%) and Himachal Pradesh (7%).
But amid all the euphoria, a note of caution. Investments can get curtailed dramatically and fresh expansion can get guillotined, warns Pronab Sen, principal adviser, Planning Commission. Remember, private investments grew at close to 40% in the mid-1990s, but that didn't stop the slump in industry when demand couldn't sustain the increase in capacities.
posted by InCar Group Press Room at 18:34
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