Private investment is anticipated to continue to build momentum in the short- to medium-term in India, as signs of a recovery are observed in areas such as real estate, construction, logistics, and chemicals, among others.
Per available data, fresh investments have surged 53 percent to Rs 21.14 lakh crore so far in 2022-23 — a 61 percent sequential rise in government capex in Q3 neutralised the 41 percent drop in private investments.
According to the data released by the Chief Economic Advisor (CEA), private sector capital expenditure rose to Rs 3 trillion during the first half of this fiscal year, and if current spending rates continue, the amount projected for the end of this financial year can be achieved. If the private sector can maintain this momentum, then the country could see Rs 6 trillion worth of capital expenditure by the end of FY 2022-23 — an impressive feat compared to recent years.
Companies have shifted their capital investment focus, with loans from banks primarily funding infrastructure, roads, renewable energy, and oil projects. In recent quarters, increased demand for working capital due to rising commodity prices drove loan growth. But since the September quarter, corporate loan growth has trended towards new capacity building.
Private capex, also known as private investment, is an important factor in the economic health of a country, as it indicates the level of business confidence. It is a measure of the willingness of businesses to invest in the future of their business. Private capex is closely monitored by governments, as it can directly impact economic growth, inflation and employment. The private sector plays an essential role in driving economic growth and development. The Union Budget for 2023-2024 signifies the Government of India's anticipation of a revival of private capex in financial year 2024.
The 'Atmanirbhar Bharat' programme of the central government shows a strong bias towards 'Make in India,' as well as Digital India, agriculture, and infrastructure development. This presents an exemplary platform for private consumers to monetise their capital expenditure plans.
Additionally, the government's planned investments in sectors such as 'Housing for All by 2022,' smart cities, and others could incite customers to augment the capital they currently invest in goods such as automation, machines, and other technological advancements.
Private capital expenditure would have a greater impact at the state level, creating more jobs and stimulating investment, as well as boosting sectors such as manufacturing.
Looking to the future, private capex is projected to continue to be a major driver of economic growth. It is expected that private capital expenditure will increase significantly by 2023-24. By increasing private capital expenditure, companies will be able to expand operations, invest in new technologies, and create new jobs. This will lead to greater economic prosperity at the state level as well as beyond.
Strategies to boost private capex in FY24
Invest in infrastructure development and create a stable and predictable business environment to attract private investment. The government is investing in schemes that will increase efficiency, such as Gati Shakti (national master plan for multi-modal connectivity). Essentially, such schemes generate demand for a variety of services and jobs.
The other aspect is to build capacity to improve our supply side. This is how industry is doing it because capex caters to both demand and supply sides. In two ways, it will crowd in private investment. Inputs can be obtained through two methods: direct routes involving private contractors and suppliers, or indirect routes. The private sector is also the most active user of infrastructure. The primary goal in the medium term is to capitalise on supply-side factors.
The current environment is highly conducive to continued growth in the medium term. A strong financial system, resilient demand drivers, reinvigorated investment cycles, and ongoing structural reforms all suggest this trend will continue. The digital infrastructure developed over the past eight years is also helping promote business growth.
In conclusion, the pick-up in private capex in FY24 is uncertain and will depend on a variety of factors, including the demand outlook, policy interventions, liquidity availability, and credit growth. Although there are signs of an uptick in private investments, it remains to be seen if the sector will pick up meaningfully in FY24. It is likely that the economic recovery in the coming months will be a crucial indicator of the prospects of private capex in the upcoming financial year.
Deepak Sood is Secretary General, ASSOCHAM