The share of private capital expenditure in the Gross Fixed Capital Formation has declined over the years to touch a decadal low of 33 per cent in FY24 largely due to slowdown in capex led by unlisted entities.
After a sharp expansion of 23 per cent in FY23, private capex was flat in FY24. Notwithstanding a moderation from 28 per cent in FY23 to 12 per cent in FY24, capex by listed entities continued to record a growth. This implies that capex of unlisted entities contracted in FY24, according to an analysis of 4,500 listed and 8,000 unlisted entities by ICRA.
Gross Fixed Capital Formation, encompassing the gross addition to fixed assets and intangibles, constitutes around 30 per cent of India’s nominal GDP, making it the second largest component after private final consumption expenditure.
Over FY15 to FY24, GFCF has grown at a compounded annual growth rate of 10 per cent. However, this has been slowing down since FY23. While the government’s strong capex push and household investments in real estate contributed favourably to the growth in GFCF in FY24, private capex growth remained slow. This led to moderation in the GFCF growth to 9 per cent in FY24 from 20 per cent in FY23.
Weak domestic consumption
K Ravichandran, Executive Vice President & Chief Rating Officer, ICRA, said private capex was muted last fiscal and 11 months of FY25 due to weak domestic consumption, especially urban, muted export demand, and influx of cheap Chinese imports in some sectors, restricted the capacity expansion plans of Indian corporates.
Dissecting further, data reveal that this slowdown is being largely led by unlisted entities, as listed corporates continue to expend. This has led to an uptick in the latter’s share in the total capex pie to 16 per cent in FY24 from 14 per cent in FY22.
The cash generation of corporates has consistently improved, post the Covid shock, with the ratio of cash flow from operations vis-à-vis capex increasing to 1.6 times in FY24 from an average of 1.3 times from FY14 to FY20. This has also led to a steady reduction in gearing levels to 0.9 times in FY24 from 1.1 times in FY14.
