An uncomfortable report about the Indian economy shows that only twenty among the top 500 companies account for 60 per cent of all capital expenditure in Indian industry. Of the top spenders, nine are state-owned companies.
The report by India Ratings and Research buttresses an estimate released by the Asian Development Bank also on Tuesday cutting back on growth estimates for India for 2015-16 to 7.4 per cent from its March estimate of 7.8 per cent.
Both the reports ascribe the low investment spending in the economy as the reason for their bleak numbers.
According to the former additional capex in the industrial sector depends on a set of pitifully few companies. And that too has come down.
The top ten companies in the list include Reliance Industries, Power Grid Corporation, Indian Oil, NTPC, ONGC, Bharti Airtel, Sail, Tata Steel, JSW Steel and Idea Cellular. Looking at them sector wise, three are from oil and gas, three from steel and two each from power and telecom. Sectors such as auto and cement are conspicuously absent from this list. Since these are largely commodity based companies the slow down in their capex has more to do with easing off of commodity prices than interest rates.
While the reports do not say so it becomes obvious that the impact of a cut in interest rates by RBI would be muted in reviving investment in the industrial sector.
It also means growth in the Indian economy does not disproportionately depend on capex spending by these companies. To put it into perspective, capital spending by the top 500 asset-heavy companies account for less than 15 per cent of the gross capital formation in the economy. The worry is that even within this light basket only about 20 per cent account for close to two third of total industrial capital expenditure. Over the past few years, this concentration risk has increased. It was less than 60 per cent in 2013-14 and 52 per cent in 2012-13. In aggregate numbers, the total investment of the 500 largest companies will be approximately Rs 2,80,000 crore.
On a positive note, the Ind-Ra report notes that the low level of 2014-15 is expected to be the bottom and the economy is expected to turn around in another two years.
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