Capital expenditure by the corporate sector has seen a fall in growth rate this financial year. It rose 10.4 per cent in the nine months to December 2011, compared to 14 per cent in 2010-11. The quarter-on-quarter growth also remained sluggish at three-four per cent for the eighth quarter in a row.
Data on capital employed by 670 companies during the first nine months revealed whatever increase had been achieved was because of ongoing projects, capitalisation of long-term borrowings and capitalisation of foreign currency losses, instead of making provisions in the quarterly profit & loss account.
Pawan Agrawal, director, corporate and government ratings, CRISIL, said, "In the infrastructure domain, we continue to see activity in building new road projects, while project implementation in the power sector is extremely slow. In the industrial sector, companies are cautious in undertaking new projects due to a moderation in demand, lower profitability and higher interest rates. Capex revival will take at least six months."
Corporate India is unlikely to see capital spending going up substantially, as most big players, as well as small and mid-cap companies, have not announced major capex plans for the next two financial years. A Reserve Bank of India study indicated softening of capital expenditures in 2011-12.
Mahesh Vyas, managing director of the Centre for Monitoring Indian Economy, said, "This year, capacity expansion will see marginal growth, as supply bottlenecks in coal, iron ore and gas have affected several power and steel projects. These supply bottlenecks are expected to be resolved in 2012-13 and, hence, we may see power projects announced earlier go on stream, but the real capex growth will be visible after two years."
Among big companies, Tata Steel announced a capex of $2.5 billion for FY13-15. Of this, $800 million is towards the Orissa project, $100 million in few raw material projects, $400-500 million in the Jamshedpur project and $600 million for Tata Steel Europe.
Reliance Industries announced approval of the development plan (FDP) for its satellite fields in the D6 block, but acknowledged the FDP would need to be revisited.
There is no exploration activity planned until the second half of 2012 either. Also, in the light of lower gas prices in the US, the company intends to slow down its capex programme in pure gas acreages. It is not surprising few companies announced capital expansion plans in the first nine months. Of the $29.5 billion worth foreign currency loans mobilised through external commercial borrowings by 873 companies, only 136 companies raised $2.62 billion for new projects and $3.06 billion for modernisation. The Deutsche Bank India Equity Strategy report for 2012 expects a capex turnaround by the end of the second half of the 2012 calendar year, largely driven by the construction sector, particularly from the railroad segments. A clarity could also emerge for mining capex, which would start the process for power capex by the end of the 2013 calendar year.