Private Capex Dips to Decadal Low in FY24: ICRA

Mumbai, Mar 24 (PTI) Domestic rating agency ICRA on Monday said private capital expenditure's share in the overall investments in the economy dipped to a decadal low of 33 per cent in FY24.

Among the private companies, it was the unlisted players which were subdued in investments as compared to the listed entities, as per a report.

It can be noted that for the last few years, the government has been driving investments, leading to concerns in some quarters over the private sector's absence and its impact on the overall economic activity.

The private sector has instead focused on deploying excess cash at reducing loan burdens rather than investing in new facilities, choosing to run at high capacity utilisation.

"Weak domestic consumption, especially urban, muted export demand, and the influx of cheap Chinese imports in some sectors, among other factors, restricted the capacity expansion plans of Indian corporates," the agency's chief rating officer K Ravichandran said.

Illustrating the importance of investments in the economy, the agency said Gross Fixed Capital Formation (GFCF), encompassing the gross addition to fixed assets and intangibles, constitutes around 30 per cent of India's nominal GDP, making it the second largest component after private final consumption expenditure.

The GFCF has been slowing down since FY23, largely due to the slowdown in the private sector's activity, the agency said, adding that government capex and household investments in real estate have helped it.

The listed corporates increased their capex spending by 28 per cent in FY23 and 12 per cent in FY24, but the unlisted entities experienced a contraction in FY24, dragging overall private capex growth, the agency said.

The cash generation of corporates has consistently improved, post the Covid shock, with the ratio of cash flow from operations vis-a-vis capex increasing to 1.6 times in FY2024 from an average of 1.3 times from FY2014 to FY2020. This has also led to a steady reduction in gearing levels to 0.9 times in FY2024 from 1.1 times in FY2014, it said.

"Deleveraged corporate balance sheets, together with improving cash flows from operations, point towards favourable conditions for an upturn in the private capex cycle," Ravichandran said, adding RBI's rate cuts, and income tax relief in the budget could help the process.