Good investment climate boosts project financing

Good investment climate boosts project financing


The State’s share in the overall project cost of ₹1,43,314 crore sanctioned by banks and financial institutions increased to 8.7% in 2021-22 from just 0.7% of ₹75,558 crore in 2020-21

The State’s share in the overall project cost of ₹1,43,314 crore sanctioned by banks and financial institutions increased to 8.7% in 2021-22 from just 0.7% of ₹75,558 crore in 2020-21

An improved investment climate and economic recovery after the COVID-19 pandemic have boosted financing for private sector projects in Tamil Nadu by 8% over the past year. The State’s share in the total cost of private corporate sector projects sanctioned by banks and financial institutions has significantly improved in 2021-22. Tamil Nadu’s share in the overall project cost of ₹1,43,314 crore sanctioned by banks and financial institutions increased to 8.7% in 2021-22 from just 0.7% of the overall project cost of ₹75,558 crore in 2020-21. The State’s share from 2012-13 to 2019-20 had stood at 6.4%.

According to an article, ‘Private Corporate Investment: Growth in 2021-22 and Outlook for 2022-23’, published recently in the Reserve Bank of India bulletin, Rajasthan accounted for the highest share, in total cost of projects sanctioned by banks and financial institutions at 13.3%, in 2021-22. Even though its share declined from 17.1% in 2020-21, it retained the top place for two consecutive years.

More new projects

As the article points out, capital expenditure (capex) of the private corporate sector plays a significant role in driving the overall investment climate. With the resumption of business activities and improving demand, the announcement of new projects, especially infrastructure projects, increased significantly during 2021-22.

“The increase in Tamil Nadu’s share in private corporate investment last year is encouraging. The State government has taken several steps in recent months to revive the investment climate,” said Vidya Mahambare, professor of economics, Great Lakes Institute of Management. However, “it is important to ensure that the projects under the recently signed memoranda of understanding, worth over ₹1.4 trillion and with a focus on tech and skill-based industries, such as semiconductors, renewable energy, and electrical vehicles, remain on track for implementation”.

The RBI article noted that after a setback during the pandemic, announcements of new investment projects (in the country) increased significantly during 2021-22, with the total cost recording an increase of about 90% over 2020-21, but still remaining below the pre-pandemic level. Infrastructure continued to attract maximum capex projects, led by the power and road and bridges sectors. Reflecting the policy initiatives of the government, investment in renewable energy is gaining traction over the years, the article said.

Ms. Mahambare said Tamil Nadu needs to be cautious of environmental degradation and pollution while implementing its ambitious investment plans. It also needs to figure out a solution to mounting power subsidies and raise the State’s own tax revenue (the government recently hiked power tariff). “Overall, however, the government has been moving in the right direction.”

The study does seem to indicate positive signs for Tamil Nadu because both in terms of number of projects as well as the percentage share, it has gone up significantly, said professor Lakshmi Kumar, Dean, IFMR GSB at Krea University.

“Tamil Nadu has a proactive Industries Department and Guidance Bureau. Under the able political leadership, they have been successful in bringing in investments. They have to ensure that the State stays competitive vis-a-vis other States in major factors of production,” said Srivats Ram, managing director, Wheels India Ltd. The government should tap into the ‘China plus one’ outlook with overseas companies looking at India. Attention must be paid to areas where local supply chains can be built. “A focus on supply chain-based industries would bring in more employment,” he added.

The State should also look at services and not just manufacturing especially now as technology is blurring the boundaries. “This approach would be useful in maximising skilled employment opportunities in a State with a large number of graduates,” Mr. Ram added.

Echoing a similar view on tapping ‘China plus one’, M. Ponnuswami, former Chairman of CII Tamil Nadu, pointed out one of the areas to focus on is bringing more private and transshipment ports.

Differing on the capital boost, K.E. Raghunathan , national chairman of the Association of Indian Entrepreneurs, contended that the RBI report is purely on capital expenditure and lacks an in-depth study of the total industrial activity or performance. Also it does not cover manufacturing or services or small and medium enterprises. He also pointed out that Tamil Nadu’s share has been lesser than other States.

States such as Rajasthan and Uttar Pradesh have performed very well in the last two years. “It is important to improvise on capex spending by corporates, which in turn will support small and medium enterprises and local entrepreneurs to grow,” Mr. Raghunathan said.