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New project investments revive from severe contraction; expenditure still remains sluggish

Samrat Sharma
Finance Minister Nirmala Sitharaman, india infrastructure, infrastructure industry, indian economy, india gdp, economy slowdown, global economy, fastest growing economy, new orders

India has seen a revival in the investments on new capital projects in the second quarter of the current financial year, recovering from a severe contraction in the previous quarter. The capital expenditure on new orders surged to Rs 1 lakh crore in Q2 from Rs 85,000 crore in Q1, CMIE data showed. However, this investment is still far below the levels seen in the second half of the previous fiscal year, which was just a little less than Rs 6 lakh crore. The importance of investment in the economy can be well understood by the fact that a fall in capital expenditure is one of the major reasons behind the ongoing slowdown in the country.

"Real GDP growth fell to a 25-quarter low in Q1 FY20 on weak private consumption and investment," said the RBI in October's Monetary Policy report. However, the RBI also suggested that the overall investment activity remained sluggish in the second quarter. Fewer projects were completed in the second quarter in comparison to the previous three quarters but more stalled projects were restarted during July-September.

The slowdown in investment activity was also reflected in a decline in financial flows from banks and non-banks to the commercial sector. Another reason cited for the downfall in investment is that the states have reduced their capital spending in order to adhere to fiscal deficit targets in the last few years, said an RBI report.  

Also Read: Nirmala Sitharaman says government giving sector-specific solutions to fight slowdown

To boost investment and to create demand in the economy, the government has announced a slew of measures in the past two months as these two concerns are seen as major drivers of the ongoing slowdown. "We are giving relief to all sectors who need help. We are giving sector-specific solutions to fight the slowdown in economic growth," Sitharaman said today.

Her comments came hours after global ratings agency Moody's Investors Service sharply cut India's FY20 GDP growth forecast to 5.8 per cent. Even the RBI cut India's GDP forecast to 6.1 per cent for the current fiscal year.