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Indian-Commodity  :  Economy  :  Private capex growth to remain muted till FY20: India Ratings

Private capex growth to remain muted till FY20: India Ratings (12-Jan-2018)

Private sector capital expenditure growth is expected to remain muted with slowing pace, for next two financial years on account of weak domestic consumption demand, global overcapacity and negative impact of Goods and Services Tax (GST) on working capital. As per credit rating agency, India Ratings and Research's (Ind-Ra) latest report, the private capex is likely to grow at a CAGR of only 5-8% over FY18-FY20 which is much lower than 13% growth rate during FY09-12, but better than the 4% annual average of FY13-17.

As per the report, during FY18-FY20, the companies will spend more on their maintenance and essential upgrades and meaningful capex recovery will happen after FY20. It further noted that the recovery will be led by 125 non-stressed companies out of total top 200 asset heavy companies, while remaining stressed companies will keep capital expenditure subdued over the next two to three years.

The report found that leveraged sectors like infrastructure, metals and mining and power could lower their capex spending over FY18-FY20 compared with oil and gas, auto and telecom sectors. Besides, within these 6 sectors, private entities will be major drivers of capex recovery as compared to the public sector undertaking (PSU). The rating agency also found that government spending declined, at growth rate of 6% only in FY17 as against 40% in FY16 and pointed that despite GST's augmentation to the government revenues, the overall investment cycle is unlikely to revive, owing to the limited ability of the government to scale up spending owing to fiscal rectitude.


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