In early ominous signs of things to come, a Reserve Bank of India (RBI) study has estimated that the capital expenditure (capex) in India by corporates may slow down by more than 30% in 2008-09. This expected drop in capex comes after four consecutive years of growth at more than 40%. As per the report, capex figures are expected to touch Rs 173,173 cr in 2008-09, drastically lower than the Rs 245,107 cr raised by companies in 2007-08.
In the last financial year, one of the key drivers of growth in capex was the Rs 442,000 cr worth of capital inflows of which 37% was in foreign debt, 27% was equity market-related inflows, 14% was net FDI and the balance 22% in other hybrid inflows. Major reasons for the drop is obvious the difficult of companies in raising fund overseas in the last six months, due to the global credit turmoil, following the sub-prime credit crisis in the US. The other major contributor viz. the local equity market has also been in doldrums in the past six months, with IPOs either not getting the required response or being postponed due to fear of under subscription. High inflation and a spate of interest rates hikes, has also led to slowdown in investment plans announced by industries?
Over the last three years, investments were made primarily in the automobile, cement, oil and gas, power, steel and telecom sectors. However, most of these sectors are unlikely to go for fresh expansion in the coming years on account of ongoing recession and price freeze by the government to control inflation. The cement, steel and sugar sectors are chief examples of industries that have been caught between rising input costs and disproportionate increase in realisation on account of price controls. The projected downside risk to growth in 2008-2009 has increased due to uncertain global conditions, primarily because of volatility in oil prices and capital markets.
However with India getting the waiver at the NSG, the future looks bright for the capital goods industries, which could prop up the capex figure with their investments. Even telecom sector could provide a boost with the advent of 3G services in India and the additional requirement of infrastructure for the services.
In the last financial year, one of the key drivers of growth in capex was the Rs 442,000 cr worth of capital inflows of which 37% was in foreign debt, 27% was equity market-related inflows, 14% was net FDI and the balance 22% in other hybrid inflows. Major reasons for the drop is obvious the difficult of companies in raising fund overseas in the last six months, due to the global credit turmoil, following the sub-prime credit crisis in the US. The other major contributor viz. the local equity market has also been in doldrums in the past six months, with IPOs either not getting the required response or being postponed due to fear of under subscription. High inflation and a spate of interest rates hikes, has also led to slowdown in investment plans announced by industries?
Over the last three years, investments were made primarily in the automobile, cement, oil and gas, power, steel and telecom sectors. However, most of these sectors are unlikely to go for fresh expansion in the coming years on account of ongoing recession and price freeze by the government to control inflation. The cement, steel and sugar sectors are chief examples of industries that have been caught between rising input costs and disproportionate increase in realisation on account of price controls. The projected downside risk to growth in 2008-2009 has increased due to uncertain global conditions, primarily because of volatility in oil prices and capital markets.
However with India getting the waiver at the NSG, the future looks bright for the capital goods industries, which could prop up the capex figure with their investments. Even telecom sector could provide a boost with the advent of 3G services in India and the additional requirement of infrastructure for the services.
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