India Inc. On Why Private Capex Is Elusive And What Can Bring It Back

Excess capacity and headwinds posed by global uncertainties may hold private capex back, as India heads toward its next Union Budget and the world faces a threat of impending recession, according to India's top business leaders.

At the Confederation of Indian Industry's Global Economic and Policy Summit, discussions were held on the state of the global economy, the movement of private capex in India, the upcoming Union Budget, and the issues that India needs to focus on.

With yesterday's 35 basis point monetary policy rate hike, business leaders expect another hike before inflation mellows into the tolerance band. They also remain watchful of how the U.S. Fed will react and influence the interest rate regime.

"There will be a crucial signal on interest rate trajectory from the Fed in December. We need to watch the Indian situation. I sense there could be one more rate hike...at maybe 6.5%," said Uday Kotak, managing director and chief executive of Kotak Mahindra Bank, who attended the India Inc. panel.

According to Sanjiv Bajaj, chairman and managing director of Bajaj Finserv Ltd., India is picking up from an uneven recovery post-pandemic.

The upper middle class, which did not lose their jobs during the pandemic, has increased spending on white goods, whereas the lower middle class faces more stress as indicated by a drop in consumption, he said.

There may be a visible slowdown in rural demand as the government slowly pulls back the support it extended to rural India during the pandemic, Bajaj said.

"We have seen investments in the last few quarters in real estate, construction, logistics, chemicals, and other sectors. But there are many other sectors where there still is excess capacity," he said. "We are looking at a short- to medium-term window for private capital to come back."

Sanjiv Puri, chairman and managing director at ITC Ltd., said that the macro fundamentals for corporate investment were good, in terms of the availability of funds and the strength of corporate balance sheets.

"The issue is capacity utilisation, which is picking up, but there is serious global uncertainty and serious headwinds on exports. For domestically focused companies like us, private capex is continuing and ongoing," he said.

India's story of resilience shared by its business leaders finds resonance in global ratings as well. Recently, the World Bank raised its India GDP growth forecast for the current fiscal to 6.9% from 6.5%.

It said that the economy’s relative resilience to external headwinds and “a strong out-turn” in the second quarter of FY23 were key factors.

Bajaj's recommendations included an alignment of industrial and trade policies; ensuring deeper, larger financial services to support the real economy by channelling savings; creating capacity by doubling education and health spending; and improving social security coverage.

The manufacturing contribution to GDP needs to be raised from 17% to 20–25%, he said.

Janmejaya Sinha, chairman of the Boston Consulting Group, India, said that India needed to work on making important issues part of the core narrative to get politicians and policymakers to take note.

Sinha expects India's technology stack to be used to improve health and education in the country.

According to the business leaders, India's current opportunities include the possibility of more growth, capitalising on the China +1 strategy, focusing on untapped sectors like the agri-value chain and food processing, and continuing its work towards building a sustainable environmental agenda.

"India is building a significant presence in renewable energy and not taking a protective position...We are seeing what's right for the planet...we need to come together and make our environment better," Kotak said.