Investment Attractiveness of Indian States

What’s in today’s article?

• Why in News?
• Highlights of the RBI Study
• Purpose-wise Pattern of Projects
• Reasons behind Pick-up in Investments and Future Outlook

Why in News?

• According to a study by the Reserve Bank of India (RBI), 5 states accounted for more than half of the total bank-assisted investment proposals made during the year 2022-23, mirroring the skewed pattern of industrialisation in the country.
• The RBI study gives an indication of how attractive states are among investors.

Highlights of the RBI Study:

• Overall investment plans: It shot up by 79.50% with a record capital outlay of Rs 352,624 crore – the highest since 2014-15.
  • Significantly, the rise in new investments has happened at a time when the RBI hiked the repo rate (the rate at which the RBI lends to banks) by 250 basis points to 6.50% since April 2022.
• Total cost of the projects financed by banks and financial institutions:
  • As many as 547 projects got assistance from banks and financial institutions during 2022-23 with a record high total project cost of Rs 2,66,547 crore as compared to 401 projects with a total project cost of Rs 1,41,976 crore during 2021-22.
  • Showing a surge of 87.7%, the envisaged total cost of the projects financed by banks and financial institutions reached a new peak during 2022-23 since 2014-15.
• The state-wise distribution of new investments:
  • Top five states: UP (16.2% or Rs 43,180 crore), Gujarat, Odisha, Maharashtra and Karnataka together accounted for 57.2% share (or Rs 2,01,700 crore) in total project cost during 2022-23, higher than 43.2% share during 2021-22.
  • Who is at the bottom? In bank-assisted projects, Kerala, Goa and Assam are at the bottom of the table in getting the lowest number of new investments.
• Performance of private sector: Overall, a total capital investment of Rs 2,19,649 crore through the various channels of funding was expected to be made by the private corporate sector in 2022-23 (6.7% higher than the previous year).

Purpose-wise Pattern of Projects:

• Investment in green field (new) projects: It accounted for the largest share of 93.1% in the total cost of projects financed by banks and FIs during 2022-23, in line with the trend seen in the past
• The infrastructure sector: Comprising power, telecom, ports and airports, storage and water management, special economic zone (SEZ), industrial, biotech and IT park, and roads & bridges, remained the major sector.
  • It accounts for 60% share in the total cost of projects during 2022-23.
• Within the infrastructure sector: Roads and bridges held a significant share in the total project cost, supported by the government’s push towards infrastructure projects through the “Bharatmala” initiative.

Reasons behind Pick-up in Investments and Future Outlook:

• The pick-up in investments is largely due to the capital expenditure plans of the government, raising business optimism and revival in private capex in certain key sectors.
• What provided a conducive environment for the private corporates to undertake fresh capital all India investment?
  • A sustained pick-up in bank credit in recent periods,
  • Rising capacity utilisation,
  • Improved business outlook and demand conditions and
  • Various government policy initiatives to support investment activities.
• The near-term outlook for private investment activity in India is gauged from project investment proposals of the private corporate sector.

Q1) What is the Bharatmala initiative?

The Bharatmala Pariyojana envisages development of about 26,000 km length of Economic Corridors, which along with Golden Quadrilateral (GQ) and North-South and East-West (NS-EW) Corridors are expected to carry majority of the Freight Traffic on roads.

Q2) What are the special economic zones (SEZ)?

A SEZ is an area in a country that is designed to generate positive economic growth. An SEZ is normally subject to different and more favorable economic regulations compared to other regions in the same country, including tax incentives and the opportunity to pay lower tariffs.

Source: UP, Gujarat among top 5 states in new investments; Kerala, Assam at bottom