Private companies’ investment plans fall for last 7 years in row; RBI study lists three reasons

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Updated: March 13, 2019 1:55:45 PM

Private corporate investment plans have fallen for the seventh year in a row on account of economic slowdown, poor project appraisals and huge corporate leveraging, RBI study showed.

After FY11, when capex plans were at their peak at Rs 370,600 crore, they are on a continuous decline.

Private corporate investment plans have fallen for the seventh year in a row on account of economic slowdown, poor project appraisals and huge corporate leveraging, RBI study showed. The bank funds stuck in the projects that failed to take off, abandoned or stalled rose three times to over Rs 10 lakh crore, it added.

After FY11, when capex plans were at their peak at Rs 370,600 crore, they are on a continuous decline, falling 44.90 per cent from Rs 269,900 crore in FY14 to Rs 148,700 crore.

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“Total capex of Rs 148,700 crore would have been incurred by the private corporate sector in 2017-18, of which Rs 80,200 crore was from fresh sanctions during the year. The year marked the seventh successive annual contraction in the private corporate sector’s capex plans”, RBI study said.

Despite fall, the envisaged capital expenditure from the pipeline projects already undertaken showed an improvement over the last year’s pipeline, the central bank added.

However, some recovery is expected in the capex cycle on back of  the projects sanctioned in the first half of FY19, together with the pipeline projects already undertaken. “Going forward, investment activity is expected to gather pace, benefitting from the pipeline projects lined up by private corporates. A revival in the investment cycle could be underway in the medium term, as revealed in these investment plans,” study also noted.

The efforts taken up recently to strengthen balance sheets of both corporates and the banking sector should provide a conducive environment for a pick-up in capital formation, it also said.

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