The Hindu Business Line : Infrastructure in focus

The investment cycle may now be teetering on the brink of a slowdown, but a recent RBI study of projects (in the private sector) assisted by banks and financial institutions over a five-year period reveals the extent to which investments in infrastructure were ramped up during this period. From 57 projects in this sector in 2003-04, the number has more than doubled to 147 in 2007-08 and the investment in infrastructure has shot up from about Rs 41,000 crore to about Rs 1.33 lakh crore.

The bulk of the infrastructure projects have been taken up in the power sector. Beginning 2005-06, SEZ (Special Economic Zones), industrial, biotech and IT parks share the limelight too. From about 13 projects initially, the number trebled to 37 in 2005-06 and zoomed to 53 in 2007-08.

Slowdown

The number of projects taken up by Corporate India has grown steadily from 591 in 2003-04 to 1054 in 2006-07; but 2007-08, witnessed for the first time a 15 per cent drop in projects sanctioned assistance to 910. This fall supports the much-feared slowdown in investments, talked about in recent times. For more than a year now, rising interest rates and, of late, inflation have taken the wind out of the sails for rate-sensitive sectors such as consumer durables and auto thus slowing consumption.

Sagging IIP (Index of Industrial Production) numbers, especially in such sectors as capital goods raise apprehensions about a slowdown in consumption spreading to investments as well. That this has indeed happened is revealed from this fall in outlays. The textile sector was the worst hit with projects falling from 258 to 120 in the 2007-08. Sugar, coke and petroleum and hotels were the other major industries that saw lower number of projects, while metals and cement maintained the number of projects year on year.

Whether a new project or a project for expansion, modernisation or diversification of an existing facility, the negative trends remained. For example, while 566 new projects were sanctioned last year, the number dwindled to 508 in 2007-08.

Bigger project size

One positive trend, however, has been a scaling up of individual project sizes over this period. From 144 in 2003-04, the number of projects costing less than Rs 10 crore fell to 24 in 2007-08 while projects costing Rs 500 crore and above rose from 20 to 98. For the latest period, although the number of projects have reduced year on year, growth in total investments remains flat predominantly due to the increase in project size. Corporate India spent nearly the same amount — Rs 2.84 lakh crore on 910 projects in 2007-08 as it spent on 1,054 projects in 2006-07 ( Rs 2.83 lakh crore). This is corroborated by the rise in the average project outlay as well from Rs 270 crore in 2006-07 to Rs 312 crore in 2007-08.

PARVATHA VARDHINI C

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