Even though the government has made a big push to invest in infrastructure and the finance minister has said that he will attract private investment, bankers and business leaders see no immediate response from India Inc and they will wait for an increase in demand and an increase in capacity utilization before they commit to investments.
“Right now, even big companies are deleveraging and cleaning up their balance sheets. They are in no rush to take on debt and invest and they will wait for demand to pick up and the use capacity increases before embarking on expansion. I think the big private sector investments are still 12 to 18 months away,” said a senior banker who did not wish to be named. He added that even while some ancillary demand will increase as a result of public investment and this may lead to investment in these areas, large private sector investment will take some time.
However, industry leaders feel that the government’s fiscal push on public capital investment is the best the government could have done at this stage and which must continue over the next 1-2 years. . .
While the government seems inclined to provide the initial impetus, it expects the private sector to follow and play its part. “The virtuous circle of investment requires that public investment attract private investment. At this stage, private investments seem to need this support to reach their potential and meet the needs of the economy. Public investment must continue to take the lead and pump up private investment and demand in 2022-23,” the finance minister said in her budget speech.
But India Inc seems inclined to wait and focus more on improving its balance sheet and waiting for demand to reach critical mass.
RBI data shows that at an aggregate level, capacity utilizations for the manufacturing sector fell to 40% in Q1FY’21, then increased to 69.4 in Q4’FY21. It however fell to 60% in Q1FY’22. While the situation appears to have improved over the past two quarters, industry insiders say capacity utilizations will need to reach critical mass before they can intervene.
“There is optimism in the market, but from now on it will be mainly government led. Investing and borrowing will be mostly quasi-government for some time now. the demand front will come back, the economy could start to see big private sector investment,” said the head of a financial services firm.
Markets rose and held on Tuesday after the budget announcements and benchmarks Sensex and Nifty and BSE and NSE rose 1.5% and 1.4% respectively, confirming the budget announcements. In line with the government’s big push in infrastructure investment, the BSE Metals Index and Capital Goods Index jumped 4.9% and 2.9% respectively. Even the BSE industrial and banking indexes rose 1.7% and 1.3% respectively.