As private sector ups the capex game, public sector is found lacking

(Representative image)

Amid palpable optimism for a new cycle in India’s capital expenditure spending, the latest data points suggest that momentum is still modest at best.

According to brokerage firm Nirmal Bang Equities, overall capital expenditure announcements in the first eight months of 2022-23 are down 9.3 percent over 2019-20, the year before the onset of the COVID-19 pandemic. Capex announcements, however, are up moderately from April-November 2021-22.

The year 2019-20 registered one of the deepest recessionary periods in the Indian economy, triggered by the aftereffects of shadow banking giant IL&FS’ collapse in 2018 and a general slowdown in domestic consumption.

Private sector capital expenditure, which has shown green shoots in 2021-22, accelerated sharply in 2022-23 led by chemicals and renewable energy sectors.

Capital expenditure announcements from the private sector jumped 53 percent from the pre-pandemic level to Rs 8.5 lakh crore in April-November and 34.6 percent from the year-ago period, according to Nirmal Bang Equities.

Chemical and renewable energy sectors together account for 80 percent of the capex announcements by the private companies in 2022-23, so far, in contrast to metals and data centre firms that led during the pandemic years.

Economists have pointed to improving corporate balance sheets and surging bank loans to suggest that India is experiencing a new wave of capital expenditure, which has alluded the country over the past decade.

Worryingly, it is the public sector that is pulling the overall capital expenditure announcements down.

The Centre's capital expenditure announcements have plummeted 71 percent below their levels prior to the onset of the pandemic and are down 76 percent from the year-ago period.

The government's capex is likely to account for 39 percent of public sector capex in 2022-23, according to Motilal Oswal Financial Services.

The lack of strong growth in capex announcements, so far, takes prominence ahead of the Union Budget, where India Inc hopes the government would continue to spend on infrastructure projects. In the previous budget, the government had announced a substantial jump in its capex to spur the COVID-hit economy.

The Centre, however, has done the heavy lifting in terms of actual capital expenditure over the past 18 months. Its capex has surged 52 percent in the first half of 2022-23 and its spending of Rs 3.2 lakh crore in April-September was higher than that of 2020-21.

“The foundation of the trending ‘imminent capex revival’ narrative is strongly driven by this spike in Center capex,” Motilal Oswal Financial said in a recent note.

The brokerage also said that within the public sector, the capex from central public sector enterprises is set to decline on a year-on-year basis in 2022-23, marking a third consecutive year of fall. Accordingly, public sector capex is likely to fall to an eight-year low of 5.7 percent of GDP in the current financial year.

“The decline in the central government capex pipeline is a cause for concern as project implementation could slow in future,” Nirmal Bang Equities said.

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