Government schemes such as productivity-linked incentives (PLI), and the growth in production of capital goods and infrastructure have shown the beginning of a massive investment cycle in the private sector from the next financial year after showing a massive turnaround in the first six months of the ongoing fiscal year, the Economic Survey said.
The Survey predicted a sustained increase in private capex with the strengthening of the balance sheets of Indian corporates and the consequent increase in credit financing it has been able to generate. The growth in manufacturing output is also seen within the overall consumer durables segment in sync with the “pent-up” consumption demand, it said.
The Survey quoted an Axis Bank report, which shows that the capital expenditure by the corporate sector increased to Rs 3.3 trillion in the first half of the 2023 fiscal year, driven by heavy investments in the electricity, steel, chemicals, auto and pharmaceutical sectors.
The Survey said the PLI schemes across 14 categories have further complemented it with an estimated capex of about Rs 3 trillion over the next five years and has the potential to generate over six million jobs. In the medium term, the scheme will help reduce net imports by building India’s manufacturing capacity that will cater to domestic and global needs.
Several top Indian conglomerates have announced billions of dollars of investment in green energy, semiconductor, and mobile manufacturing units after the Indian government offered the PLI scheme. Vedanta group is planning to invest $20 billion to manufacture semiconductors in association with Foxconn of Taiwan in Gujarat.
Similarly, the Tatas also announced an investment of $90 billion in the next five years for semiconductors, mobile manufacturing and electronics. The Adani group plans to invest a massive $107 billion by 2030, and Reliance Industries has announced plans to invest $76 billion toward clean energy projects.
The report said it was essential that capex continued to grow to facilitate employment in the economy, at least until such time the global economy rebounded. “‘Thankfully, the private sector has all necessary preconditions lined up to step up to the plate and do the capex heavy lifting. Their internal resource generation is good, capacity utilisation is high, and the demand outlook continues to improve. Capital markets are willing to finance new investments, as are financial institutions,” said the report.
Sanjiv Bajaj, president of Confederation of Indian Industry, said the government’s steps on fiscal deficit would also create the space for increasing capex significantly, especially in the infrastructure sector, to drive the economic growth engine in the current year and beyond.
Subhrakant Panda, President, Ficci, said, “We are hopeful that the Union Budget will continue to lay major thrust on capex, including physical, digital as well as social infrastructure; this will help crowd-in private investments, which has already started to show an uptick.”
According to a report by Elara Capital, capital expenditure of Rs 99.52 trillion is on the cards in the next few years due to policy push via PLI, indigenisation, digitisation and strategic infrastructure such as railways, defence and power. Of this, the China plus one will result in Rs 24.35 trillion investment as multinationals set up units in India to de-risk their manufacturing from China facilities. The railway and defence investment may attract Rs 22.06 trillion of capex and data centres are estimated to attract Rs 1.23 trillion and the power sector is expected to lead the capex push, with Rs 28-trillion investments.
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