Private sector investment not broad-based: BoB’s Sabnavis

Corporate investment has continued its revival in the April-June quarter (Q1FY24). However, much of this revival has been driven by aircraft purchases by airlines and is not broad-based, Bank of Baroda’s Chief Economist Madan Sabnavis said on Tuesday. This puts the onus of doing some more heavy lifting in terms of capital expenditure on the government.

“A key to acceleration in pace of growth in the Indian economy is a recovery in private sector investment. There have been affirmative statements made by several companies on investment in FY24 which is positive as it is premised on a recovery in consumption demand. The picture for the first quarter of the year is however, quite expectedly mixed,” Sabnavis said in a report.

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A closer look at the new investment announcements for Q1-FY24 of Rs 5.96 lakh crore reveals that they are heavily tilted to the transport sector, largely in the airlines industry, the report observed.

While the transport sector accounted for 74 per cent of new investment announcements last quarter, the other areas included power sector (10 per cent), chemicals (8 per cent), machinery (3 per cent) and the auto sector (2 per cent).

Much of the new investments by airlines were in aircraft, which technically are capital assets, but would not be generating backward linkages with other sectors, accruing no benefit to other related industries. “The boost is more for the global manufacturers of these aircrafts,” Sabnavis pointed out.

The total amount of funds raised by India Inc was Rs 2.33 lakh crore in Q1FY24 as against Rs 97,000 crore in the same period last year. “However, almost 89 per cent of the funds mobilised was from the financial sector of which asset financing companies accounted for 72 per cent. Hence there was limited fund raised by non-finance companies,” the economist noted.

“Bank credit for the first two months (April and May) has been robust in agriculture, services and personal loans. But not so in industry,” he added, pitching that the onus of capex in the short to medium term is on the government.

Finance Minister Nirmala Sitharaman had announced a record Rs 10 lakh crore capital investment plan from the central government, in her 2023 Union Budget.