PLI to drive capex in industrial sectors by 40-45 % in FY22: CRISIL report

India's GDP growth to be at 11 per cent in fiscal 2022, says report predicting two-phase economic recovery

Capital expenditure in industrial sectors is expected to rise 45-55 per cent in financial year 2021-22 as the economy gains from a government's scheme to boost productivity, said a report by Crisil Research on Tuesday.

The India Outlook Report expects gross domestic product (GDP) growth to be at 11 per cent in fiscal 2022, after an estimated 8 per cent contraction this fiscal. The next fiscal, like the current, will have a low base “optical” growth in the first half and a rebound in the second.

The capex rise in pharmaceuticals, chemicals, textiles, cement, auto and ancillary, metals and oil and gas will come on the back of a 35 per cent contraction in capex in the current fiscal. It will be driven by core sectors and the government’s productivity linked incentive (PLI) scheme. Led by the oil and gas, that accounted for 30-32 per cent, close to 16000 manufacturing companies spent Rs3-3.5 trillion on capex annually over the past three years.

“Without PLI, a meaningful recovery would have come only after two years in non-metal and cement sectors,” said the report. PLI is directed at sectors that account for 30-35 percent of non-oil import bills.

For instance, automobiles and components worth Rs 80,000 crore to Rs 90,000 crore—the highest among all the sectors in value terms-- were imported from China and Korea in FY20. This was 20-25 per cent of India’s auto components requirements.  

The second largest was the IT hardware (laptop, personal computers, tablets and servers) sector that imported goods worth Rs 25,000 crore to Rs 30,000 crore from China and Hong Kong in FY20. This was 80-85 per cent of demand for such hard wares in the domestic market.    

Meanwhile Crisil expects the high government spend across various sectors including manufacturing and infrastructure to ensure recovery in corporate revenue but added the recovery will be mainly "optical". The revenue of top 800 companies is expected to go up only 8 per cent in FY22 over FY19. The recovery it added will be led by exports, products and infra spends. However,  of the 30-35 sectors spread across 800 only a third are likely to post double-digit growth over fiscal 2019. Most companies in the services sectors including aviation and hospitality may not even breach the FY19 levels and may see nearly a decade of revenue shaved off, it cautioned.