India's private capex falls to 33% in FY24

Private capital expenditure in India has dropped to its lowest level in a decade, according to a report by ICRA. The private sector's share of total investments fell to 33% in FY24. The report highlights that unlisted companies invested less compared to their listed counterparts. ICRA noted that the government has been the main driver of investments in recent years. This has raised concerns about the private sector's limited role and its effect on the economy. The private sector seems to be focusing more on reducing debt instead of expanding operations. Many companies are running at high capacity but are not investing in new facilities. Several factors have contributed to this trend. Weak domestic consumption, especially in urban areas, low export demand, and an increase in cheap Chinese imports have all restricted expansion plans for Indian businesses. ICRA's chief rating officer, K Ravichandran, emphasized the importance of investments for economic growth. The report also stated that Gross Fixed Capital Formation (GFCF) makes up about 30% of India's nominal GDP. GFCF has been slowing since FY23, primarily due to decreased activity in the private sector. However, government spending and household investments in real estate have offered some support. Listed companies did increase their capital expenditure by 28% in FY23 and 12% in FY24. In contrast, unlisted entities saw a decline in FY24, which affected overall private capex growth. Corporates have improved their cash generation since the Covid pandemic. The ratio of cash flow from operations to capex rose to 1.6 times in FY2024. Ravichandran indicated that, with lower debt levels and better cash flows, conditions might be favorable for a rebound in private capital expenditure. He also mentioned that measures such as rate cuts by the RBI and tax relief in the budget could further support this recovery.