India in middle of private capex upcycle aided by government push

India in the midst of a private capex upcycle aided by government capex: Economic Survey 2024

India is in the midst of a private capex upcycle that has been aided by government capital expenditure, the Economic Survey 2023-24 has said.

Gross Fixed Capital Formaton (GFCF) by private non-financial corporations increased by 19.8 per cent in FY23, the survey, citing data from the National Accounts Statistics 2024, released by the Ministry of Statistics and Programme Implementation (MoSPI), said.

“There are early signs that the momentum in private capital formation has been sustained in FY24,” the survey added.

Gross Fixed Capital Formation has emerged as an important driver of growth, as indicated in its rising share of nominal GDP, the survey noted.

The Economic Survey added that data provided by Axis Bank Research showed that private investment across a consistent set of over 3,200 listed and unlisted non-financial firms grew by 19.8 percent in FY24.

Moving forward, healthier corporate and bank balance sheets are expected to further strengthen private investment.

“With cleaner balance sheets and adequate capital buffers, the banking and financial sector is well-positioned to cater to the growing financing needs of investment demand. Credit disbursal by scheduled commercial banks (SCBs) to industrial micro, small and medium enterprises (MSMEs) and services continues to grow in double digits despite a higher base,” the survey noted.

However, credit offtake by large industries seems to be growing at a lower albeit stable pace, it added.

According to the survey, the continuing momentum in government capex has begun to crowd in private investment.

Sounding a Ha note of caution, the pre-Budget document added that while it remains the government’s responsibility to facilitate the development of infrastructure and address logistical challenges, it is incumbent upon the private sector to take forward the momentum in capital formation on its own and in partnership with the government.

“Between FY19 and FY23, the share of private non-financial corporations in overall GFCF increased only by 0.8 percentage points from 34.1 percent to 34.9 percent. This was mostly driven by their fast-increasing share in the additional stock of dwellings, other buildings and structures. Their share in addition to the capital stock in terms of machinery and equipment, started growing robustly only since FY22, a trend that needs to be sustained on the strength of their improving bottom-line and balance sheets in order to generate high-quality jobs,” the survey said.

The survey said that the Indian private sector has to now receive the baton from the public sector and sustain the investment momentum in the economy. “The signs are encouraging,” it noted.