RBI STUDY ON CORPORATE CAPEX
Contrary to popular perceptions, India Inc. has not been cowed down by the global meltdown or its aftermath and reflecting solid confidence in the India Growth story, 30 per cent enhanced capex plans were launched in 2009-10. In fact, even in the preceding year when most of the world's economies suffered deep recession scars, the capex launches in the country had shot up 40 per cent annually.
Thus, according to RBI compilations, banks and FIs sanctioned Rs.5.56 trillion for 796 projects in 2009-10. In addition, Rs. 324 billion was proposed to be raised by 255 companies through ECBs (inclusive of FCCBs) and Rs.17 billion by 19 companies through domestic equity capital. Altogether, the fresh investment intentions of 1,075 companies during the year aggregated Rs. 5.90 trillion. This feat marks a quantum jump over similar, provisionally assessed, Rs. 4.55 trillion capex plans of 1,043 companies in 2008-09 and 1,300 startups with fresh investment of Rs. 3.23 trillion in 2007-08 by 1,605 companies.
For the institutionally assisted projects, the investment rally was led, as in the previous year, by high-value projects envisaged in power, telecom and metal and metal products sector. More than 80 per cent of this total project cost has been envisaged in 86 highvalue projects with project cost of more than Rs.100 billion each, together costing Rs. 4.56 trillion.
Actual capex by corporates based on time phasing, as indicated in the project reports sanctioned assistance till 2009-10, was estimated at Rs. 3.14 trillion, up 7 per cent over 2008-09, which was assessed to have recorded 36 per cent rise in actual capex. Lower growth in capex in 2009-10 could be due to sharply reduced plough backs in 2008-09.
It is observed from phasing details from 2006-07 to 2009-10 that 27-57 per cent of sanctioned amount is disbursed in the year of sanction only and 5-20 per cent in one-two years immediately preceding the year of sanction; the rest 23-68 per cent gets spent in post-sanction years.
Based on available phasing details, the current fiscal 2010-11 could see capex of around Rs. 2.52 trillion. This could go up to around Rs. 4 trillion, assuming the level of sanction in 2009-10 as also its time phasing of capex are maintained in the current fiscal.
Phasing of sanctioned capex (Rs. billion) |
Year of
phasing/sanction |
2008-09 |
2009-10 |
Year of
sanction/capex |
2008-09 |
2009-10 |
2010-11 |
Till 2006-07 |
0.8 |
0.1 |
Till 2005-06 |
97.5 |
23.4 |
17.9 |
2007-08 |
265.5 |
73.3 |
2006-07 |
496.1 |
148.1 |
32.1 |
2008-09 |
1,073.4 |
545.7 |
2007-08 |
726.6 |
411.2 |
325.7 |
2009-10 |
897.0 |
1,664.6 |
2008-09 |
1,073.4 |
897.0 |
588.0 |
Post 2009-10 |
1,093.7 |
3,276.4 |
2009-10 |
545.7 |
1,664.6 |
1,558.7 |
Total |
3,330.4 |
5,560.1 |
Total |
2,939.2 |
3,144.3 |
2,522.4 |
Heavy concentration of intentions in infrastructure continued during 2009-10: 53 per cent of the total project cost was accounted for by infrastructure sectors that included Rs. 1.68 trillion for 90 power projects and Rs. 1.18 trillion for 10 telecom projects. Investment in this group in recent years is largely led by high-value projects.
Among the other segments, metals & metal products and construction (real estate etc.) were prominent with Rs. 1.13 trillion and Rs. 476 billion of outlay, respectively.
With total proposed investment increasing sharply from Rs. 343 billion in 2008-09 to RS. 748 billion in high-ticket projects, Odisha displaced Maharashtra as the top investment destination, though Maharashtra was home to, as in the previous year, maximum number of projects. Multiple state projects accounted for 31 per cent of total outlay against 18 per cent in 2008-09.
In a highly skewed pattern, against 11 mega projects each with Rs. 100 billion and more outlay, accounting for 34 per cent and 75 large projects individually with Rs. 5-100 billion another 47 per cent, 673 small to medium size projects each with up to Rs. 5 billion outlay accounted for only around 12 per cent of the total project cost of Rs. 5.56 trillion envisaged in 796 projects.
As many as 515 projects with envisaged outlay of Rs. 3.66 trillion were for setting up new undertakings, while 250 with total outlay of Rs. 1.44 trillion were for substantial expansion and modernisation; the rest were for diversifications etc.
The RBI study captures the likely growth of corporate investment based primarily on phasing details of projects sanctioned assistance by commercial banks and other non-banking financial institutions. This is in addition to capex details of the companies which raise domestic equity and external commercial borrowings including foreign currency convertible bonds.
Still, the companies which raise resources from private placement of equity, debt, bonds/debenture issues, ADR/GDRs, as also companies financing investment from internal sources remain un-captured. As phasing of corporate investment by years is based on expenditure patterns outlined in the proposals filed while seeking loans from banks and institutions, the soundness of the assessment of likely corporate investment rests heavily upon the assumption that companies adhere to the expenditure patterns outlined in the initial proposals. We would suggest that RBI should occasionally validate this pattern by gathering actual phasing by borrowers at least on a sample basis, and publish findings which would be valuable inputs for research in this area.