Capex India Inc has to do its part
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Jun 20, 2024 | Page No.: 4 | Position: Top Center | Source: Madan Sabnavis | Sq Cm: 638 | AVE: 117999 | PR Value: 589995
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MADAN SABNAVIS with the Union Budget likelyto be presented in July there are a plethora of expectations and suggestions being made to the government But one common suggestion is asking the government to spend more on capex This is significant because normally investment is in the purview of the corporate sector which includes PSUs This opens the discussion on whether the corporate sector is passing the buck and not doing its bit In FY24 the national gross fixed capital formation expenditure was t91-laldi crore which is around 31 per cent of the GDP Assuming the FY25 GDP is around 1328-lakh crore and the investment ratio remains unchanged BIOV GHOSH the amount of capital formation would be around t102-lakh crore The Interim Budget had targeted a capex of t 11 11-lakh crore for the year C apex India Inc has which would be 11 per cent of total capital formation There are two do questions here how much can 11 per cent of the total drive overall investment and second how much more does India to u its part Inc want the government to do Data on the Centre s capex is quite illuminating The government increased total capex from 13 36-lakh crore in INVESTMENT THRUST Government has been doing much of the heavy lifting on FY20 just before Covid struck to investment in recent times It s time the private sector stepped up t11 11-lakh crore for FY25 This is a multiple of 3 3 times So there has been considerable the private space as this is where jobs are Hence there has been progressive However based on the companies advancement made here But this was created with capex indirect contribution to capital investor presentations it can be seen made possible also by the increase in Further it should be noted that capex formation by the government through that industries which are linked to government borrowings from 19 33-lakh has been concentrated mainly in roads the household sector infrastructure have witnessed steady crore in FY20 to t15 55-lakh crore in railways and defence Executing large Data on growth in gross fixed capital growth in investment which include FY25 This was the result of the fiscal projects can also run into capacity issues formation throws light on the relative steel cement chemicals and machinery deficit ratio also moving up sharply from given that India has a federal set up and pace of growth across sectors For the There also seems to be an absence of 4 6 per cent of GDP in FY20 to 9 2 per land acquisition is a challenge even for system as a whole CAGRwas 11 5 per demand revival in the last two years due cent in FY21 and then gradually rolled national highways projects cent for the period FY18-FY23 In case of to lower rural incomes and high inflation back to 5 1 per cent in FY25 Logically the onus of investment has both the PSUs and private players which has eroded purchasing power So This was the time the government had to be on the corporate sector growth was lower than this average while FMCG and durable goods companies are to spend in a bigway on both welfare Interestingly NSO data on contributors it was higher for the government and unlikely to invest till economic schemes NREGS PM-Kisan housing to gross fixed capital formation shows household sectors conditions improve free food etc as well as capex to keep the that the corporate sector has a dominant Therefore the corporate sector needs The conclusions that can be drawn are economy moving at a time when the share of 44 per cent followed bythe to take charge here and not always look that while the government does play the private sector was not in a position to do household sector with 42 per cent for for the government to provide role of engine to drive infra industries so FY23 For the household sector acceleration For the corporate sector growth by providing the initial push dwellings accounted for 70 per cent of investment decisions crucially hinge on there is need for the corporate sector to FISCAL PRESSURES total capital Here it must be pointed out return on investment so business accelerate their plans Quite clearly this accelerated pace of that a major boost to housing has been considerations override all other factors Prospects for GDP growth in the next growth in capex cannot be sustained provided by the government in the In case of the government this is not five years are bright and it can be said forever While the government can Budget through the PM Awas Yojana the case as money spent is based on with reasonable confidence that it would increase its outlay the pressure of not through capex necessity and while there is now a clear average around 8 per cent Hence there maintaining the fiscal deficit at direction on monetising assets that have is reason to invest across sectors acceptable levels 4 5 per cent by FY26 been created profitability is not the chief The clue is employment generation and probably 3 per cent in the Due to fiscal constraints concern which generates income and consuming subsequent three years would place the Centre cannot sustain power But it is the private sector some limits on the same CAPACITY UTILISATION especially manufacturing that has to The government would have to the current levels of capex Currently the corporate sector s average invest as well as create jobs to lead to a balance the two objectives of Given the strong growth capacity utilisation was 76 5 per cent as virtuous self-fulfilling cycle maintaining social welfare outlays till of March as per the RBI This number is such time that there is more prospects the corporate impressive as normally a ratio of 78-80 The writer is Chief Economist Bank of Baroda Views employment created which will be in must step up to the plate per cent triggers fresh investment expressed are personal