The Economic Survey for 2023-24 reiterated the need for private capex to pick up the baton of capital expenditure from government. Amongst the several other pointers in the report, critical emphasis was placed on the gap between private and public capex, and the required support infrastructure to spur it back in action.
A bl.portfolio analysis earlier this year showed that the fixed asset growth in the listed universe (excluding public sector) was at 6.9 per cent CAGR in FY19-23 compared with revenue CAGR of 8 per cent. This lagged the 8 per cent CAGR in fixed assets formation in PSU companies for the same period. The Economic Survey paints a similar picture with Gross Fixed Capital Formation (GFCF) showing a cumulative growth of 52 per cent in FY19-23 compared with the government’s 64 per cent. The Survey notes that under GFCF, machinery and IP assets grew only 35 per cent, while dwellings and other buildings lead the growth at 105 per cent, making for unhealthy mix in capital formation.
The Economic Survey points out that the lowering of corporate tax rates to 25 per cent has not translated to higher capex outlays, as may have been envisaged. But the report also notes that corporate balance sheets have been strengthened after the bad debt period earlier and green shoots of private capex recovery is underway in the last two years after balance-sheet strengthening.
A recent bl.portfolio analysis also showed that leverage ratio for India Inc stands at a more acceptable 2.5 times net debt to EBITDA in FY24, contracting significantly from 4.2 times in FY19. In relation to fixed asset growth, the pace of debt expansion at 5.4 per cent CAGR for FY19-FY23 is a step below asset addition growth mentioned earlier, as the current expansion has not been debt fuelled.
On aspects of access to financial capital, the report talks of limitations faced by small enterprises to access capital, which limits their potential. For larger organised entities, the report also mentions how broader corporate bonds markets can be efficient and lower issuing timelines, which is now limited to only the highly credit rated corporate entities.
Course correction
The Survey outlines few measures to revive private sector capex, linking it to generating income and demand through reforms in agriculture and MSME sectors. On agriculture, the Survey says that employment, especially in rural sector, is the need of the hour. It also states that if agriculture reforms are not taken up, it could have far-reaching impact starting from dietary choices to groundwater availability. On MSME, the report talks of MSME categorisation aimed to provide relief having the unintended consequence of limiting MSME sector to smaller size and hence advocates gradual implementation of MSME deregulation.
On a broader note the report also talks of government ‘letting go’ of the heavy regulatory overhang on industries to allow faster and agile capital formation.