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50% plunge in investment in FY12 is the cause of growth deceleration: RBI

27 Aug 2012 Evaluate

India’s growth story in recent past which has been substantially driven by large infrastructure investments has been hit badly. Reserve Bank of India, in its ‘Annual Report 2011-12’, has blamed nearly 50% drop in new investments in large projects, to be the primary reason behind continued growth deceleration of the Indian economy in the current fiscal. Hit hard by global woes and domestic problems, India's economic growth rate slowed to a nine-year low, both in the March quarter and fiscal 2011-12 at 5.3% and 6.5% respectively.

The Reserve Bank’s collation from banks and financial institutions underscored that envisaged total fixed investments in new projects that were sanctioned financial assistance during 2011-12 have slipped by 46% to about Rs 2.1 trillion from Rs 3.9 trillion a year ago. This drop was mainly led by infrastructure and metals sectors. The envisaged investment in infrastructure dropped by a whopping 52% to Rs 1 trillion in FY12 from Rs 2.2 trillion in FY11, with power and telecom accounting for most of this fall, the report pointed.

While, the investment in the telecom sector has dried up, that in roads, ports and airports has also decelerated sharply, the report added. Road projects have also slowed down due to problems relating to land acquisition, legal and environmental clearances as also tightening of financial conditions. Road tendering activity has suffered significantly in Q1 of 2012-13 after a record tendering by NHAI in 2011-12.

Gross bank credit to infrastructure outstanding as of April 2012 was Rs 6.2 trillion. Data on sector-wise gross deployment of bank credit shows that its year-on-year growth slipped by 14% in FY12 compared to 38% growth in FY11. Meanwhile, the exposure of banks to the power sector is about Rs 3.3 trillion as per the sector-wise deployment of credit obtained from 47 scheduled commercial banks that account for 95 per cent of total non-food credit.

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