Share in investment falls 10 ppt in four years
Though finance minister P Chidambaram has focused on getting PSUs to hike their investment levels—for listed PSUs, capital invested has stagnated in recent years from R1,27,784 crore in FY12 to R1,28,408 crore in FY13—PSUs aren’t really the problem area. The real worry lies in the collapse in private sector investment, and especially that in the manufacturing sector, something that is intuitively obvious when you look at stuck projects like Posco for instance. As a percent of GDP, gross fixed capital formation has fallen from a high of 32.9% in FY08 to 29.6% in FY13—the share of PSUs remained fairly steady at 3.8% in FY08 and 3.73% in FY12 (CSO’s disaggregated data is available with a one-year lag). The share of the manufacturing sector in overall gross fixed capital formation was around 34% in FY08, India’s best year when it comes to overall investment levels, not coincidentally the year in which India’s savings were the highest ever as a proportion of GDP. And that, again not a coincidence, was due to the fact that this was the year the public sector savings were the highest, another way of saying this is the year the government dis-savings were the lowest. After FY08, however, with projects starting to get stuck, the share of manufacturing in total investments kept falling, to 28% in FY11 and to 24% in FY12—when detailed data is out for FY13, chances are the share will have fallen further.
Part of the reason for manufacturing’s relative collapse is the increase in other sectors. Power, for instance, has seen its share of investments rise from 6% to 7% between FY08 and FY12, though given the new capacity has primarily been generating losses as a result of remaining shut due to lack of fuel, it is not clear that is a good thing. Even in the case of PSUs, there has been a sharp jump in the amounts invested in energy. For PowerGrid, capital invested jumped from R6,625 crore in FY10 to R22,384 crore in FY13; for NTPC, the hike was from R14,009 crore to R20,406 crore. Even for oil PSUs who are bearing the brunt of the oil subsidies, investments have risen marginally—while they rose from R12,312 crore to R17,961 crore for ONGC, they fell from R26,883 crore to R24,789 crore for IOC/HPCL/BPCL. Lowering the subsidy outgo would help raise investments here. Equally unsurprising is the sharp 4 percentage point jump in real estate investments’ share to 17% in the same period.
Among individual industries, the one worth paying the greatest attention to is telecom, primarily since this has seen the biggest collapse in investment as well as in sentiments; it is also the sector which, should there be better policy, has the greatest potential to raise funds from overseas. While Trai’s sensible recommendations on the base price for the forthcoming 2G auctions are being opposed by the telecom ministry, the M&A rules need to be eased to encourage investment, and the defence ministry agreeing to release spectrum in the 3G band will be critical. In the case of PSUs, CSO data shows, investments halved from R7,334 crore in FY08 to R3,763 crore in FY12; for the industry as a whole, investments jumped dramatically from R31,684 crore in FY08 to R70,009 crore in FY09 and to R83,665 crore in FY10. By FY12, however, they collapsed to R59,311 crore and, based on firm-level data for listed companies, FY13 has seen this fall by another fifth. Reviving India’s investment story is going to be a long haul, requiring policy to be right every step of the way.