After four years of growth at 40 per cent or more, capital expenditure (capex) by India Inc in the current financial year (2008-09) may drop almost 30 per cent.
This is partly the result of a fall in corporate fund-raising over the last six months and partly owing to difficulties in raising funds overseas, following the sub-prime credit crisis in the US.
A Reserve Bank of India study estimates that India Inc’s capex will touch Rs 173,173 crore in 2008-09, significantly lower than the Rs 245,107 crore raised by companies in 2007-08.
In the last financial year, one of the key drivers of growth in capex was the Rs 442,000 crore worth of capital inflows — of which 37.1 per cent was in foreign debt, 26.9 per cent was equity market-related inflows, 14.4 per cent was net foreign direct investment and the balance 21.6 per cent in other hybrid inflows. (The reason capital inflows exceed capex is that this money may typically take a year to be allocated for investment).
But this fiscal, analysts believe capital inflows into India could drop to anywhere between Rs 132,000 crore and Rs 176,000 crore. The RBI pegs the figure at Rs 148,350 crore.
Last financial year (2007-08) alone, around 648 listed firms had invested a whopping Rs 140,463 crore in fixed assets. This investment accounted for about 3 per cent of India’s gross domestic product (GDP) and 13.3 per cent of net sales of the sample companies.
| CAPEX BY LISTED FIRMS | ||
| Year | Capex (Rs cr) | Growth (%) |
| 2003-04 | 38095.13 | 26.69 |
| 2004-05 | 48262.72 | 42.35 |
| 2005-06 | 68388.36 | 41.70 |
| 2006-07 | 100364.26 | 46.76 |
| 2007-08 | 140463.63 | 40.00 |
The investment was top- heavy. Around 25 firms accounted for 61 per cent of the total investment. Reliance Industries topped the category with a capex spend of Rs 19,111 crore — up 131 per cent from the year before. The remaining 24 firms posted a 46 per cent rise in investment.
The scene has changed drastically now. The projected downside risk to growth in 2008-2009 is due to uncertain global conditions, primarily because of volatility in oil prices and capital markets.
Over the last three years, investments were made primarily in the automobile, cement, oil and gas, power, steel and telecom sectors. Other industries such as capital goods, construction, engineering, fertilisers, sugar and metal also witnessed capital expansion during the same period.
However, most of these sectors are unlikely to go for fresh expansion in the coming years on account of ongoing recession and price freeze by the government to control inflation.
The cement, steel and sugar sectors are prime examples of industries that have been caught between rising input costs and disproportionate increase in realisation on account of price controls.
