– By Gaura Sengupta
Over the last few years conditions have been conducive for recovery in private corporate capex. For starters balance sheets of both banks and corporates are in much better shape. Capacity utilization in the manufacturing sector has increased to 75% since last year (on a 4-quarter moving average basis), which is associated with pick-up in investment. The last time capacity utilization was at 75% or higher for more than a year was over 2010 to 2013. GDP growth since FY23 has averaged at 7.6%, indicating strong recovery in domestic growth momentum post Covid-19.
Over the last few years some recovery in the capex cycle is seen but the pace of recovery has been below expectation. Investment to GDP has risen to 30.8% in FY24 which is marginally higher than pre-Covid19 levels of 29.5% in FY19. The recovery in investment has been led by real estate, private corporates and the general government. Based on data available till FY23, private corporate capex has risen to 10.9% of GDP from 10.3% in FY19 (pre-Covid 19). Household sector investment, which is mainly real estate picked-up to 12.9% of GDP in FY23 from 12.1% in FY19. In FY24 and FY25 the pick-up in household investments has continued, reflected by bank credit data. Household mortgage loans from banks have risen to 9.1% of GDP as of Q1FY25 v/s 6.9% as of FY23 Q1. Meanwhile, infrastructure loans from banks remained more muted in FY25. There has been substantial support from the government both Centre and state government, with sharp increase in capital expenditure in FY24. Some of this support has waned in FY25, with decline in capital expenditure in H1FY25, with focus shifting towards elections.
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The last time India saw a strong pick-up in the capex cycle was during FY05 to FY08, with average growth in gross fixed capital formation at 14.5%. During this period investment to GDP ratio had risen to 35.8% of GDP in FY08 from 28.3% in FY04.
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