India remains a ‘long way off’ from a complete turnaround in the corporate investment cycle despite various positive economic indicators, says a Dun & Bradstreet report.
According to the report, after a “fairly long spell” some positive data on the Indian economy with respect to IIP, inflation and easing of environment rules for various projects, has trickled in.
“Despite these developments, we remain a long way away from complete turnaround in India Inc’s investment cycle, and that, inarguably remains the single-biggest challenge confronting the economy,” it said.
It noted that the ongoing unclogging of projects would provide a moderate push to investment, but the meaningful pick-up in the capex cycle “critically hinges on a visible improvement in demand conditions”.
“The fact that capacity utilisation is floundering in sectors such as capital goods and metals is testimony to weak demand environment,” it added.
Additionally, it noted that demand slowdown has affected consumption- driven sectors such as consumer durables, FMCG.
According to D&B the turn around in output of consumer durables in the IIP data “is due to favourable base effect and owes no relevance to revival in consumer demand”.
Noting that lower food and fuel prices are likely to provide a fillip to private consumption in the coming quarters, the report said “extant capacities in most sectors is more than sufficient to satisfy emerging demand and therefore it is unlikely that private consumption growth would result in a broad-based pick-up in the capex cycle”.
“This in turn explains the reluctance displayed by India Inc in undertaking fresh investments,” the report said adding that devaluation of the Chinese yuan have added to the woes.
“The sudden move on the part of China to devalue its currency would impact the competitiveness of Indian exports, which is already reeling under sluggish growth due to recessionary conditions in global markets,” D&B said.
The report said that lower interest rate, can effectively bring about a turnaround in investment.
It observed that the government needs to accelerate structural reforms to unclog supply-side constraints as well as clear the GST and land acquisition bills which are “critical to revive long-term growth prospects”.