Domestic enterprises would likely experience a 10% to 12% increase in capital expenditure in the upcoming fiscal year, according to Fitch Ratings, despite the Union Budget’s pledge to spend Rs 10 trillion on capital projects to boost growth in 2023–24.
“For the financial year ended March 2023 (FY23) to FY24, we expect capex for Fitch-rated corporates in India to continue expanding by 10%-12% a year,” the agency stated. Capex increased 16% in FY22 after remaining flat from FY19 to FY21, it added. Eight state-owned and 21 privately held Indian corporates that are publicly rated by Fitch are included in the prediction.
The agency stated that against a backdrop of solid demand visibility, the expenditure is concentrated on capacity expansion across industrial sectors, which serve as the foundation of building and manufacturing activity. India’s GDP is expected to rise by 6% to 7% annually over the next few years, according to Fitch.
The government too has urged private sector firms to increase their capex and is hoping to attract investments through measures such as the PLI scheme.
In the medium term, it said, “We believe growth opportunities arising from India’s supply-side policy steps in recent years, domestic corporates focusing more on localization, and multinationals looking to reduce risk in global supply chains may attract higher private investment.” However, it cautioned that slower-than-expected progress may present risks.
Some governmental reforms, like the goods and services (GST) tax act or the bankruptcy legislation, have been in effect for a while, but more recent actions, like a reduced corporation tax rate, the PLI schemes, and increasing state spending on infrastructure, may further encourage investments, the report stated.
But, the rating agency warned that India, which continues to be a significant net energy importer and exports around 21% of its output, faces possible cost and currency pressures from high commodity prices and a poorer outlook for the global economy.
The capex outlook may also be tempered by rising interest rates amid inflationary pressures for corporates with a smaller scale and weak financial profile, it further said. However, the secular nature of most capex drivers should mitigate these risks over the medium term.
source from: msn.com
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