Policy logjam a key factor responsible for the slowdown

A poll of 200 companies (including 170 private sector companies) by CRISIL Research has revealed that capital expenditure (capex) by Indian corporates will dip by 14 per cent in 2012-13. At 35 per cent, the decline in investments of the private sector companies polled will be far steeper. Moreover, close to half of those polled indicated that they have no intention of investing in new projects this year.

Over 70 per cent of those polled also indicated that policy logjam was among the top two factors responsible for the current slowdown in investments.

At an overall macro-economic level, the key finding is that capex by corporates is slowing.

The planned capex for those polled is expected to be 14 per cent lower in 2012-13 compared to the previous year. It comes on the back of a 4 per cent fall in capex in 2011-12. The 200 companies polled account for around 70 per cent of the market capitalisation of all companies in the S&P CNX 500 (excluding banking and financial services companies).

“Capex by private sector companies in our survey is expected to decline by nearly Rs 720 billion or 35 per cent in 2012-13. Since the private sector accounts for three-fourth of India’s GDP and over 90 per cent of its manufacturing output, the revival of private sector investment is critical to lift the sagging economic growth,” said Roopa Kudva, Managing Director and CEO, CRISIL.

The sectors where capex is expected to decline significantly are cement, textiles, telecom and automobiles. Most of the total planned capex of Rs 2.7 trillion in 2012-13 by polled companies is towards existing ongoing projects; only about one-fourth is towards new projects. Close to half of the companies also indicated that they have no plans of starting any new projects in 2012-13.

While in some of the sectors such as metals and infrastructure (roads, ports and power) the capex is expected to increase, a large part of the capex has been deferred. In fact, 30 private sector companies disclosed that they have deferred or shelved projects aggregating to Rs 350 billion, of which infrastructure and metals account for over 70 per cent.

“A majority of the companies surveyed have indicated that policy issues such as land acquisition, mining policy, fuel linkages and spectrum pricing as well as delays in project

clearances are impacting investments. To spur investments, the government will have to play the role of an enabler by addressing these bottlenecks,” commented Mukesh Agarwal, President, CRISIL Research.

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