MUMBAI: The government’s nudge to the private sector in the interim Budget by reducing its borrowing for FY25 comes at a time when announcements of new investments have slowed down.
According to data from the Centre for Monitoring Indian Economy (CMIE), announcement of investments by the private sector in the September and December quarters of 2023-24 have dipped by 66% and 70%, respectively. Overall, in the first nine months of FY24, investments worth `8.56 trillion have been announced – almost one third of the total announcements of `24.47 trillion in FY23.
Industry players believe demand will be the key variable even though the government’s nudge, along with lower cost of borrowing, will encourage players to increase their capital expenditure (capex).
“I think large industrial houses, which need to invest for capacity expansion, will do it anyway. But I don’t think companies will rush to invest just because the government has given a relief. They don’t invest to get subsidy, but to earn returns,” said R Shankar Raman, chief financial officer, Larsen & Toubro.
Agreed Mohit Malhotra, CEO, Dabur India, “Lowering of the fiscal deficit target clearly indicates that fiscal prudence is on top of the government’s mind. However, the capex cycle will pick up based on the demand environment.”
Malhotra added that firms would hike their capex in tandem with the rise in the economy and infrastructure spends.
Nadir Godrej, chairman and managing director, Godrej Industries, believes it might take a while for private capex to gain traction. “The private sector will look at demand for new capacity addition and will expand only when the existing capacity is full. In some areas, this is beginning to happen,” Godrej said.
He added that some investments may get delayed till interest rates begin to fall. “I am sure that the private sector will be stepping up capex, but it will take some time,” he emphasised.
Many other industry leaders said that a majority of the business in India is small or medium, which affects their ability to raise capital and contribute to capex meaningfully. Even though memorandums of understanding are signed for several trillion rupees, these are large programmes spread over large periods of time and committed by only a few large industrial houses.
Others are more optimistic. According to HM Bharuka, former vice-chairman and MD at Kansai Nerolac, and an independent director at Avenue Supermarts (D’Mart) now, the private sector has not been spending “heavily” over the last few years, which prompted the government to step in.
“As the economy grows, the government will try to curtail freebies to rein in expenditure and ensure that the economy in on the fiscal road map. The onus is on the private sector to step up investments. The way I see it is that the private sector has no choice but to invest, if they have to catch the demand boom,” he said.
Bharuka believes that the capacity utilisation at manufacturing facilities has been rising and higher about 74-75% and as it grows further, companies will have to make additional investments.
However, players in sectors like real estate believe that the private sector has already been investing quite heavily. “I don’t think the private sector is restraining itself. On the contrary, it has shown prudence and maturity. Several sectors like travel and tourism, real estate, retail, logistics, data centres, financial services and e-commerce, rural penetration are all at all-time highs,” said Sanjay Dutt, MD & CEO, Tata Realty & Infrastructure.
He believes that fresh allocations for rural housing would yield positive results across diverse construction-related segments, including cement, steel and paints. And sectors such as infrastructure, healthcare and renewable energy are also poised to grow. “These would present compelling opportunities for growth-oriented investments,” Dutt added.
Rajesh Jaggi, vice chairman (real estate), Everstone Group, echoed similar views. He said that the reduced borrowing by the government and a rise in infrastructure investment would make it easier for projects to secure funding.
Source: The Financial Express
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