NEW DELHI: The Indian economy has been in the spotlight for all the wrong reasons over the past few months. The breakneck pace of its GDP engine has started sputtering and one of the central nodes from which many drag factors radiate is stagnant private-sector investment.
An enduring feature of human enterprise, however, has always been finding a silver lining in any stormcloud. This one is no different.
Even as the larger industrial houses point to inadequate demand and resulting excess capacities as one reason why private-sector investment is in a rut, some enterprises are trying to monetise the humongous unutilised resources by farming them out to smaller players who do not have the capital to invest in such projects.
Speaking to Express, Jayesh Desai, founder and chairman of Shareconomy and group chairman of the Rajhans (Desai-Jain) Group, said that since Shareconomy’s launch in November 2015, the online platform for connecting capacity seekers to excess capacity holders has been seeing steady growth.
“A few sectors where there is large levels of unutilised capacity are civil and construction material; apparel and textile; mechanical engineering; dairy; bio-medical; food and beverages; electric and electrical, etc. Shareconomy has key clients from these sectors such as Chitale Dairy, Baker Perkins UK, Global Consumer Products, Padmashree Biotech, Precise Control, etc... Specifically speaking, Shareconomy has the largest amount of capacity from the mechanical engineering sector,” Desai pointed out. The company currently deals with more than 20 sectors and aims to have capacities from different sectors.
While industrial activity as measured by the index of industrial production (IIP) has started witnessing a robust recovery from August (4.3 per cent) after venturing into the negative in June (-0.1 per cent), the status of industrial capacity utilisation remains sub-optimal. A Reserve Bank of India survey released the early October put average industrial capacity utilisation at 71.2 per cent for the 805 manufacturers surveyed. However, RBI noted in its policy note last week that the outlook has started improving in September. Industrial capacity utilisation had stood at 74.6 per cent at the end of March, 2017.
Shareconomy, for its part, is currently seeing traction from 50-55 genuine capacity seekers per day. As of now, Shareconomy has 486 registrations that it is facilitating.
Similar concepts are one way that manufacturers can begin monetising utilised resources. For example, southern cement major India Cements’ vice-chairman N Srinivasan, who has consistently raised the issue of unutilised capacity in the sector over the past few years, pointed out during the firm’s AGM that in 2016-17, all India capacity was 375 million tonnes against which cement production was 270 to 280 million tonnes. “The real challenge faced by the industry was that the growth was not uniform. There was sporadic growth in north, east, west, but not all regions had seen growth at reasonable levels.”
The upturn in private investment is critical for re-achieving robust GDP growth. RBI’s Monetary Policy Committee noted in its October review that new investment proposals significantly declined in Q2 of 2017-18 in terms of both numbers and value, as tracked by the Centre for Monitoring Indian Economy (CMIE).
Only 403 new projects were announced during the quarter, which was afflicted by GST-related teething issues. However, this is the lowest number recorded since the first quarter of 2004-05. And, while some improvement is being seen in implementation of stalled projects (especially in the roads and power transmission sectors), the Monetary Policy Committee has noted that “going forward, an increase in allocation of capital expenditure by 6.7 per cent in 2017-18 is expected to generate some multiplier and crowding-in effects, although a durable turnaround in the investment cycle largely hinges on a revival in private investment appetite.”
Despite the improvement in project implementations, private investment activity is expected to regain its earlier verve only six months or more down the line, as restart the private investment cycle, as explained by several industrial powerhouses, including Aditya Birla Group’s K M Birla, who has said that it would take at least a year for private investment to revive.
“Recent interactions with industry associations and owners indicate that the spare capacity is problem for almost all sectors. Looking at the potential spare capacity available, it will certainly take time to see increase in capacity utilsation,” admitted Desai.
In the meantime, Shareconomy has big plans and is eying expanding aggressively in India and overseas. “We foresee huge potential across the world,” said Desai, “so at least for the first few years there will be ample amount of work to bring these capacities under one platform. Along with assisting in improving capacity utilisation, Shareconomy will also help both owners and seekers by providing allied services, data analytics, technical insights, trends and behaviors in specific industry, regional sector wise analysis, etc.”
But, recent indicators point to a recovery in consumption, including in rural India. The sale of motorcycles, a much sought-after product in India’s hinterlands, has begun seeing renewed traction -- Hero MotoCorp saw its motorcycle sales achieve a world record this Dhanteras, selling 3 lakh motorcycles in a single day.
Large industrial houses, however, still have to look forward to battling with improving but lower-than-earlier levels of demand even as small firms tussle with inadequate capital formation. Farming out excess capacity to capital-deprived firms could well bridge the capacity-investment gap quicker. Because, as the saying goes, when life gives you lemons, make lemonade.