Column : Pipeline to heaven

Dec 31 2011, 00:47 IST
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SummaryThe announcement of fresh investment proposals fell sharply during 2011.

The announcement of fresh investment proposals fell sharply during 2011. A mere R10 trillion worth of new proposals were made during the year. This is a precipitous fall from the R18-20 trillion worth of proposals that were being made in each of the preceding four years.

Fresh investment proposals, according to CMIE’s CapEx database, ramped up quickly after languishing at around R2 trillion per annum for seven years from 1997 through 2003. In 2004, fresh investment proposals touched R4 trillion. They crossed R7 trillion in 2005, then more than doubled to R16 trillion in 2006 before peaking at R20 trillion in 2007. Calendar 2008 and 2009 also saw handsome levels of R19-20 trillion. Fresh investment proposals during this period were 10 times the levels in 2002. The fall in fresh

investment proposals in 2011 has been interpreted as a sign of the end of the investments cycle. However, this is an erroneous conclusion.

There are no investments cycle that can be discerned from the data. The CapEx database goes back till 1995 and it does not indicate any. The official

national accounts statistics goes back to the 1950s and this not indicate any either. Neither the growth in gross fixed capital formation nor its proportion to the gross domestic product indicate any cyclicality. The data only indicates that the growth in investments and its proportion to GDP since 2004 have been exceptionally high.

So, there is no reason to believe that the fall in fresh investment proposals in 2011 is the beginning of a downturn that follows some cyclical pattern. The large pipeline of projects created in the past seven years is expected to sustain the creation of new capacities for several years to come. The value of all projects on hand as of December 2011 was R139 trillion. Over half of these (R77 trillion) have moved beyond the stage of a mere announcement. They have made at least some progress in implementation. These projects alone could feed the creation of new capacities for another 20 years at the rate at which projects have been commissioned during the recent investment boom years. Alternately, in the coming few years, the creation of new capacities will grow to much higher levels than in the recent past. This is the power of the investment boom seen in recent times.

The country does not need new investment proposals to sustain the capex boom in the near to medium

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