Blames govt more than RBI
Policy paralysis, more than high interest rates, is likely to be responsible for the private corporate sector cutting its FY13 capex by nearly 35%, or R72,000 crore, a survey of 170 companies by ratings firm Crisil shows. The firms, along with 30 PSUs surveyed, account for around 70% of the market cap of all companies in the S&P CNX 500 excluding banking and finance companies.
The saving grace is that capital investments planned by PSUs are expected to be up 27%, or R28,000 crore, compared with FY12. Whether the PSUs will be able to generate a capex of that level, however, remains to be seen. ONGC chief Sudhir Vasudeva on Wednesday said the PSU would find it difficult to meet its capex needs if it didn’t get an oil price of at least $55 a barrel — in FY12, while ONGC got $54.7 a barrel, it gave oil marketing PSUs a discount of around $62. What happens in FY13 will depend on how much of the oil under-recoveries the cash-strapped government will bear. Similarly, cash-starved public sector oil marketing companies will find it hard to invest unless the government is able to make good their losses.
Once you take into account both the private sector fall and the public sector increase, according to Crisil, overall investment levels in FY13 will fall less, from R3.1 lakh crore in FY12 to R2.7 lakh crore in FY13.
Crisil’s survey, interestingly puts the blame for falling capex primarily on policy paralysis with over half those surveyed listing this as their top concern. This is followed by global uncertainty, and high interest rates come in as number 3 on the list of reasons cited by corporates. In other words, while interest rates matter, corporates are more concerned about the lack of coal for power firms, environmental clearances for steel mills, and so on. Not surprisingly, the largest proportion of shelved projects (70%) is in ports, roads and power. Around half of the companies said they had no plans to start new projects and of the total investment planned, just around a fourth is in new projects. Around 30 companies, all in the private sector, said they had shelved around R35,000 crore worth of projects.
Huge cash balances held by corporates – CMIE’s Prowess puts the figure at Rs 2,70,000 crore in March 2012, around 85% more than the Rs 147,000 crore in March 2008 – indicate that while companies are not starved of cash, they don’t feel compelled to invest. At the same time, though, a higher rate of interest does make projects unviable at the margin.
Crisil’s survey results are in stark contrast to CMIE’s CapEx findings which show that while Rs 4.9 lakh crore of projects were shelved in FY12, the number of completed projects rose from Rs 1 lakh crore in FY05 to Rs 3.4 lakh crore in FY11 and this will grow to a likely 4.3 lakh crore in FY12 and Rs 5.8 lakh crore in FY13.
Since both CMIE and Crisil deal with only a small proportion of the Rs 26.1 lakh crore investment in FY12 – among others, they don’t even deal with the household sector that accounts for a third of all investments in the country – it’s a good idea to look at the macro numbers. While they don’t indicate a contraction of the type Crisil indicates – there are no official projections for FY13 capex – they indicate a definite slowing, not the kind of hikes CMIE shows. From a whopping 22% growth in FY08, gross fixed capital formation (at current prices) growth reduced to just 12% in FY12. As a proportion of GDP, it is down from 32.9% in FY08 to 29.5% in FY12.