Demonetisation takes a toll on new investments: CMIE

The impact of demonetisation will have a long-lasting effect on new investment proposals than initially expected, the Centre for Monitoring Indian Economy (CMIE) said in a recent note.

According to data on its Web site, new investment proposals by India Inc fell to low of ₹1,25,000 crore in the just-concluded December 2016 quarter, compared to the average ₹2,36,000 crore worth of new investments seen per quarter in the preceding nine quarters of the Modi government.

From October 1 to November 8, 2016 (that day the demonetisation decision was enforced), 227 new investment proposals worth ₹81,800 crore were announced. In comparison, only 177 investment proposals worth ₹43,700 crore were made between November 9 and December 31, 2016, slowing the pace of new proposals considerably. In fact, the total number of new project proposals of 404 for the quarter is the lowest in over a decade.

Mahesh Vyas, CEO, CMIE, told BusinessLine that he expects the lingering effects of demonetisation to have a negative impact on new investment proposals at least till the June 2017 quarter. “An investment is made on the assumption of consumption. If entrepreneurs are seeing consumption being hit badly for their end-product, they’re going to make fewer investments, whether this is in manufacturing cars, books, shoes or even films. Industry is already running at only about 70 per cent capacity utilisation, so entrepreneurs will wait even longer before spending on expanding capacity.”

New investments worth ₹2,097 crore were announced, on an average, per day during the 39 pre-demonetisation days from October 1 through November 8. This average dropped sharply by 61 per cent to ₹824 crore during the 53 days in the post-demonetisation period. The number of projects announced per day dropped from 6 to 3 by a similar comparison.

CMIE’s data on investment proposals covers the spectrum of listed and unlisted companies, based on their disclosures to stock exchanges, government bodies and other public information.

The think-tank’s extensive database on the economy extends to over two decades. According to this data, the March 2009 quarter saw the highest value of investment proposals — at ₹8,21,564 crore — while the most number of projects were announced in the March 2011 quarter, a total of 1,676.

“The negative effects of demonetisation will last till liquidity is tight, I think the best case is June 2017,” Vyas estimates.

CMIE also found that the implementation of projects that collectively envisaged investments worth ₹77,700 crore was stalled during the December 2016 quarter. “This is 38 per cent higher than the value of projects stalled during the preceding (September 2016) quarter,” a note on the think-tank’s Web site said.

Separately, CMIE estimated that demonetisation has led to lost wages of about ₹15,000 crore as workers are forced to spend their time instead waiting in queues to exchange old currency notes for new ones.

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