Rising uncertainties ahead of the general election in which Prime Minister Narendra Modi's bid to retain power looks increasingly harder are taking the toll on new investments, a report says.
New project announcements plunged to a 14-year low in the December quarter, the lowest since mid-2004, while stalled projects remained at near-record levels, according to the report based on data available with the Centre for Monitoring Indian Economy (CMIE).
Indian companies announced new projects worth Rs 1 lakh crore in the December quarter, the data show. This was 53 per cent lower than in the September quarter, and 55 per cent off the same period a year ago.
The private sector led the sharp decline in capex announcements with new private sector projects falling 62 per cent in the October-December quarter from the July-September quarter and 64 per cent for the same period of 2018 financial year.
Public sector project announcements also fell in the December quarter by 37 per cent and 41 per cent year on year. The announcements in the December quarter amounted to Rs 50,604 crore, which was the lowest since December 2004, according to the report in Mint website.
All major sectors across the board witnessed a fall, confirming the declining trend. There was some growth, though inconsequential, in the construction sector, the report says.
The general elections are expected before May and the government has been under increasing pressure to play populism card, including a massive programme to ease farmers' misery. Prime Minister Narendra Modi's Bharatiya Janata Party that heads the ruling National Democratic Alliance (NDA) lost three Hindi heartland states in state elections last month, mainly after village voters' disillusionment with the party.
Market sources attribute a continuing overhang of bad debt, rising policy uncertainties ahead of the polls, and the increase of stalled projects to be restraining the economy, according to the report.
The CMIE data shows that the value of stalled projects rose in the December quarter, though the rate of stalling remained the same.
Project stalling in the private sector is hovering near a record high of 24 per cent. A slight pickup in the clearance of public sector projects has not dented the over stalling rate much, the report says.