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In a trough: Private sector capex lowest since FY08

The share of private investments in the infrastructure sector has fallen to a decadal low of around 25% in FY18, sharply down from a high of 37% cent in FY08, according to a Crisil Infrastructure Advisory report released on Friday.

In a trough: Private sector capex lowest since FY08
Private investments, which averaged 37% between fiscals 2008 and 2013, fell by 600 basis points (bps) between fiscals 2013 and 2017 to 31%. (Reuters)

The share of private investments in the infrastructure sector has fallen to a decadal low of around 25% in FY18, sharply down from a high of 37% cent in FY08, according to a Crisil Infrastructure Advisory report released on Friday.

Private investments, which averaged 37% between fiscals 2008 and 2013, fell by 600 basis points (bps) between fiscals 2013 and 2017 to 31%, which fell a steep 600 bps further to 25% in FY18, as a plethora of stalled projects and stressed assets dampened investor interest and risk appetite.

“A material ramp-up in government spending in the past few years has meant the share of private investments in infrastructure has fallen to a decadal low of around 25% in FY18,” the Crisil report said.
This means that between fiscals 2008 and 2018, there was a massive plunge of 1,200 bps in private investments.

While the highways sector has seen a revival in public private partnerships (PPPs), and the renewables sector some buoyancy, private investments in other infrastructure segments have remained stagnant or weak, the report said.

“Resumption and broad-basing of private investments are critical to sustain the share of infrastructure investments at around 6% of GDP over a medium-to-long-term,” Crisil managing director Ashu Suyash said in the report. “This requires new PPP frameworks, expeditious resolution of stressed assets, and steps to deepen financing sources,” she added.

Infrastructure developers agree that the private capex remains subdued; however, there are no easy answers on when it would come back on stream. For instance, the private sector investments in sectors that engineering major Larsen and Toubro (L&T) is involved with continue to be slow. R Shankar Raman, chief financial officer, L&T, said recently that the private sector, by and large, is on a wait and watch mode and would possibly make the move once the environment is conclusively favouring economic activity for their respective businesses.

MS Unnikrishnan, managing director and CEO, Thermax, told FE that the kind of orders that are coming in cannot move the needle for Thermax or for the country. “The ones that are missing in the bargain are larger power plants, where hardly anything is happening. There has not been a single refinery expansion post the Cochin refinery expansion completed few years back. There has not been any significant cement expansion in the country,” he said.

It would take perhaps another 12-18 months for any meaningful private spending to start in few sectors like cement and steel, he added.

According to the Crisil report, the highway sector saw the biggest rise from 6.9% in 2017 to 7.4% in 2018, riding on private sector interest in the hybrid annuity model (HAM) and success of asset monetisation under the toll- operate transfer model.

It said the scores of last year’s toppers, power transmission and renewables, lagged a tad given the high suo motu allocations to public sector in the former, and policy and pricing headwinds in the latter.
Ports and airports saw an improvement, too, but conventional generation, power distribution and urban infrastructure continue to lag, it said.

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First published on: 06-10-2018 at 06:14 IST