The share of private capital expenditure (capex) in India’s Gross Fixed Capital Formation (GFCF) has dropped to a ten-year low of 33% in FY2024, according to a report by ICRA.
The report highlighted that while listed companies have increased their capex spending, a decline in investments by unlisted entities has led to an overall slowdown in private sector capital investments.
It said, “While listed corporates increased their capex spending by 28% in FY2023 and 12% in FY2024, unlisted entities experienced a contraction in FY2024, dragging overall private capex growth.”
As per the report, GFCF, which includes the gross addition to fixed assets and intangibles, forms about 30% of India’s nominal GDP. It is the second-largest component after private final consumption expenditure.
Over the past decade (FY2015 to FY2024), GFCF has grown at a compounded annual growth rate (CAGR) of 10%. However, this growth has slowed down in recent years, with GFCF growth moderating to 9% in FY2024 from a strong 20% in FY2023.
What Else For Private Capex?
The report pointed out that while the government’s capex push and household investments in real estate supported GFCF growth in FY2024, private capex remained weak.
ICRA’s analysis, which covers 4,500 listed entities and 8,000 unlisted entities, shows that the sluggishness in private investments is primarily due to unlisted firms scaling back on spending.
Despite this overall decline, listed companies have continued to increase their capex. Their investments grew by 28% in FY2023 and 12% in FY2024. However, they account for only 16% of total private sector corporate capex and 5% of overall domestic capex (GFCF).
From FY2015 to FY2021, the share of listed companies in total capex had declined, as their capex grew at a 10-year CAGR of 6%, compared to 9% growth in the private sector, 11% in public capex, and 10% in overall capex.
The sectors leading private investments include oil & gas, power, automobiles, iron & steel, and telecom. Post-Covid, corporate cash generation has consistently improved.
The ratio of cash flow from operations to capex increased to 1.6 times in FY2024, compared to an average of 1.3 times between FY2014 and FY2020. This has contributed to a steady reduction in corporate debt levels, with the gearing ratio declining to 0.9 times in FY2024 from 1.1 times in FY2014.
The report highlighted the importance of private sector investments in sustaining economic growth and suggests that a revival in capex by unlisted entities will be crucial for strengthening overall private investment levels in the coming years.
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