Corporate capital expenditure fell two quarters in a row, says report

A slowdown in fresh investments has resulted in a steady decline in the contribution of the corporate sector to overall capex and its share in GPD

India’s corporate sector, including public sector enterprises (PSEs), continues to go slow on investments and capital expenditure (capex).

According to data from Motilal Oswal Financial Services (MOFSL), corporate investments declined for the second consecutive quarter in the April-June period (first quarter, or Q1) of 2023-24 (FY24).

After a contraction of 0.5 per cent year-on-year (Y-o-Y) in the 2022-23 (FY23) January-March quarter, corporate investments likely fell 6.2 per cent Y-o-Y in Q1FY24, write Nikhil Gupta and Tanisha Ladhaa of MOFSL in their recent report on corporate investments in the country.

A slowdown in fresh investments has resulted in a steady decline in the contribution of the corporate sector to overall capex and its share in gross domestic product (GDP).

The corporate sector’s share in overall investments or capital formation in the economy declined to 41.2 per cent in Q1FY24, compared to 43.9 per cent in FY23 and a pre-Covid average of around 51 per cent.

The decline in corporate capex contradicts government claims.

Recently, Finance Minister Nirmala Sitharaman said that the private capex cycle has turned around after a prolonged slack. According to her, data suggests that government capex has crowded in private investment in the infrastructure sector.

The Reserve Bank of India (RBI) also sounded bullish about corporate capex. The recent RBI report titled ‘Private Corporate Investment: Performance and Near-Term Outlook’ states, “The envisaged capital investments of private corporates, based on the projects sanctioned by banks/financial institutions, increased for the second consecutive year after remaining subdued during 2019-20 and 2020-21 (FY21).”

According to MOFSL’s estimates, the government and households were the key drivers of India’s investments in Q1FY24, while the corporate sector has taken a back seat. Overall investments were up 7.1 per cent Y-o-Y in Q1FY24 after growing by 9.6 per cent in FY23, spurred by faster growth in capex by central and state governments. This growth was faster than the growth in private consumption in Q1FY24, which was up 4.9 per cent Y-o-Y, but investments grew slower than the overall GDP in Q1.

Accordingly, the government sector accounted for 16.6 per cent of total investments in Q1FY24, up from 12 per cent in Q1 of the past three years and 10 per cent in the past decade. It also means that private investments, including corporate, households, and PSEs, grew only 2.6 per cent Y-o-Y in Q1FY24, marking the slowest growth in 11 quarters.

Corporate investments, on the other hand, slid further to 12.3 per cent of GDP in Q1FY24, compared to the average of 16.5 per cent of GDP in Q1 of the past decade and even lower than 12.6 per cent of GDP in Q1FY21.

 

Sluggish Corporate Contribution

Growth in Investments in the Indian Economy (% Year-on-Year)

 

The Share of Corporate Capex in India's GDP (%)

Note: FY24 data only for Q1

Source: Motilal Oswal Financial Services