All is not well: Private sector capital expenditure falls to lowest level in 11 years

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Updated: March 26, 2019 6:44:41 PM

“Private sector capex, which peaked in FY11 at Rs 3.7 trillion, has been on a declining trend since the past seven years. And now, during FY18, it has hit its lowest level to Rs 1.5 trillion since FY07, declining 13 per cent on a year basis,” said the report.

The overall health of the private sector in India seems to be in trouble with various data pointing out towards the falling private capital expenditure. The private sector capital expenditure in India during the last financial year 2017-18 hit its lowest level since FY07. Private sector capex has also maintained its declining trend since FY11, Motilal Oswal Financial Services said in a recent report.

“Private sector capex, which peaked in FY11 at Rs 3.7 trillion, has been on a declining trend since the past seven years. And now, during FY18, it has hit its lowest level to Rs 1.5 trillion since FY07, declining 13 per cent on a year basis,” said the report.

The declining trend can also be backed by decline in projects sanctioned by banks and other means such as Extra Commercial Borrowing (ECB) and equity issuance, by 10 per cent on a yearly basis to Rs 1.2 trillion, the report added.

The report lists certain reasons behind the declining private capital expenditure which affects the overall financial health of the companies. It includes the weak end-market demand which led to under-utilisation of capacity, high leverage in firms in sectors like steel, power and infrastructure, and delays in land acquisition and clearances.

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However, some revival is expected on the account of increasing share of green field projects in the last six years which shows renewed confidence in the private companies, added the report.

Meanwhile, a report released by the Reserve Bank of India earlier this month also pointed out towards the continuous fall in private capital expenditure for the last seven years. Since FY11, when capex plans were at the peak at Rs 370,600 crore, those are on a continuous decline. Corporate capex plans have fallen 44.90 per cent from Rs 269,900 crore in FY14 to Rs 148,700 crore, said the RBI report. This can be attributed to the economic slowdown, poor project appraisals and huge corporate leveraging, said the report.

The issue seems to be in need of urgent attention of the policy makers to revive private investments in the Indian economy which is holding back the development of the country.

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