Investment by private companies is expected to decline by a whopping Rs 72,000 crore or 35 percent from planned capital expenditure this fiscal due to a host of issues like land acquisition and fuel linkages, a report by ratings agency Crisil has said.
Mumbai: Investment by private companies is expected to decline by a whopping Rs 72,000 crore or 35 percent from planned capital expenditure this fiscal due to a host of issues like land acquisition and fuel linkages, a report by ratings agency Crisil has said.
Companies had planned an initial capex of Rs 2.7 lakh crore this fiscal but a good portion of that will remain only in paper. This southward-ho in the capex will be led by companies in the sectors like cement, textiles, telecom and automobiles, says the Crisil report.
"Investment by private sector companies in our survey is expected to decline by nearly Rs 72,000 crore or 35 percent this fiscal," Crisil managing director and chief executive Roopa Kudva said.
"Since the private sector accounts for three-fourths of GDP and over 90 percent of manufacturing output, revival of the private sector investment is critical to lift the sagging economic growth," Kudva said.
According to sector-wise analysis, capital investment in cement is expected to decline by 75 percent decline, textiles by 71 percent, pharmaceuticals by 51 percent, telecom by 35 percent. The capex in FMCGs may drop by 34 percent, automobiles by 26 percent, and oil & gas by 19 percent.
"A majority of the companies surveyed have indicated that policy issues such as land acquisition, mining policy, fuel linkages and spectrum pricing as well as delays in project clearances are impacting investments," Crisil Research President Mukesh Agarwal said.
"To spur investments, the government will have to play the role of an enabler by addressing these bottlenecks," he said.
The only green shoots come from other infra which include airports, ports roads etc which are set to growth 17 percent, IT & ITeS to growth by 25 percent and metals by a higher 31 percent.
The poll was conducted by Crisil among 200 companies, 170 of them private sector ones. At 35 percent capex, the decline in investments by the private sector will be the lowest in the past four years and comes on top of a 4 percent decline last fiscal.
These 200 companies account for around 70 percent of the market capitalisation of all companies in the S&P CNX 500, excluding banking and financial services companies.
What is more alarming is the fact that, says the survey, close to half of those polled have no intention of investing in new projects this year.
Citing the reasons for this decision, the survey quoting more than 70 percent of the respondents, says policy logjam as the amongst the top two factors responsible for the current slowdown in investments with the other being delays in project clearances.
"At an overall macroeconomic level, the key finding is that capex by corporates is slowing. This slippage in capex comes on the back of a 4 percent fall in capex in 2011-12," says the report.
The sectors where capex is set to decline massively are cement, textiles, telecom and automobiles, says the survey, adding most of the total planned capex of Rs 2.7 trillion in 2012-13 by polled companies is towards existing ongoing projects with only about one-fourth is towards new projects.
While in some sectors like metals and infrastructure (roads, ports and power) the capex may increase, a large part of it has been already deferred.
In fact, 30 private sector companies disclosed that they have deferred or shelved projects aggregating to Rs 35,000 crore, of which infrastructure and metals account for over 70 percent.
This is all the more imperative since the government sector is facing increasing constraints given its widening fiscal deficit as it is yet to come out of the impact of the expansionary fiscal policies initiated during the 2008 crisis.
Of the 200 companies that we polled, about 30 companies, all from the private sector, disclosed that they have deferred or shelved some portion of their originally planned capital investments in the past one year.
The total capital investments that have been deferred by these 30 companies are estimated at Rs 35,000 crore. Metals and certain infrastructure sectors (roads, ports and power) account for 70 percent of the deferrals.
In automobiles, significant investments already made by most large players coupled with demand slowdown in certain segments are causing a dip in future investments.
In contrast, metals and certain infrastructure sectors (roads, ports and power) will see growth in capex compared to the average for the past three years. However, the polled companies from these sectors are deferring their originally planned capex.
In the infra space, large investment by public sector companies is supporting capex growth though. Moreover, given the long project implementation cycle in these sectors, a large part of the investments is likely to be towards ongoing projects.