by Kamal Gupta, Rajesh B Kavediya, Sukti Khandekar and Snigdha Yogindran^{^}

This article presents an analysis of investment intentions of private corporates based on the projects sanctioned by bank/FIs during 2023-24. The total envisaged cost of the projects financed by banks/FIs reached a new high of ₹3.91 lakh crore during 2023-24, with 54 per cent planned to be invested by the year-end. The phasing profile of the pipeline projects finance suggests that the envisaged capex will increase significantly to ₹2.45 lakh crore in 2024-25 from ₹1.59 lakh crore in 2023-24. Rising domestic demand and capacity utilisation, improved profitability of corporates, sustained credit demand, business optimism and government’s thrust on infrastructure development, along with policy measure to encourage investment activities, bode well for private capital investment.

Introduction

Capital investment by private corporates, a major driver of India’s long-term growth, has been gaining traction, after moderating during the COVID-19 pandemic. Healthy balance sheet of banks and private companies, improved corporate profits, rising capacity utilisation, sustained credit demand, optimism in business sentiments and government’s thrust on public infrastructure¹ bode well for private capital expenditure (capex) cycle, which reflects investment climate and growth potential of the economy and facilitates economic progress.

As finalisation of corporate balance sheet takes time, many countries adopt survey-based approach to assess the near-term outlook on corporate investment and perspective planning. Such surveys provide lead information on quantum and timing of investment for direct assessment of firms’ investment intentions that are expected to materialise in the near to medium-term.

In the Indian context, the Reserve Bank has been tracking private capex plans through monitoring of the projects that are funded by banks /financial institutions (FIs)² for assessing investment outlook.³ This article presents the analysis of investment intentions of private corporates based on the projects sanctioned by bank/FIs during 2023-24, supplemented by alternative sources of capex funding, where the total cost of projects is considered to get a comprehensive view, instead of limiting it to the portion that is financed by banks/FIs.

The article is structured into five sections. Section II sets out the methodology and assumptions used in the study. Important features of projects sanctioned or contracted during the period of review (i.e., 2023-24), funding thereof, and distributional aspects in terms of regions and industries are presented in Section III. Section IV deals with the phasing profile of the sanctioned/contracted loans/financing and estimates growth of corporate investment, while section V concludes the study.

II. Methodology and Assumptions

For the assessment of near-term outlook of investment activity of private corporates, the methodological framework proposed by Rangarajan (1970) has been adopted. For this purpose, data on investment intentions are gathered through three different sources, viz., (i) banks and FIs which are involved in the business of project finance to private corporates, (ii) finances raised for capex purpose through the external commercial borrowings (ECBs) [including issuance of foreign currency convertible bonds (FCCBs)), rupee denominated bonds (RDBs)], and (iii) funding raised through initial public offerings (IPOs), follow-on public offerings (FPOs) and rights issues by the private corporates for capex purpose.

This study focuses exclusively on projects that receive funding from the aforementioned sources, having a project cost exceeding ₹10 crore, and majority ownership stake of project with private corporates. Projects having majority stake holding with the Central and/or State governments, and projects initiated by trusts and educational institutions are excluded from the scope of this study. It has been ensured that each project is included in the dataset only once, to obviate double counting and consequent overestimation.

The estimates are derived under the assumption that companies adhere to their ex-ante capital expenditure plans. It is, however, important to note that these estimates could differ from the actual private corporate fixed investment data provided in national accounts as (a) some of the project investment intentions may undergo modifications in terms of their planned amount and timing; (b) funding sources of certain projects may shift to internal resources and/ or other sources, such as, fund raised from capital market/ bond financing and foreign direct investment (FDI); and (c) some new projects may come up and some planned ones may be shelved.

III. Characteristics of Projects Sanctioned/ Contracted

The investment intentions of private corporates remained buoyant during 2023-24 as reflected in rising total number of projects as well as the total cost of projects sanctioned by banks/FIs. During 2023-24, about 944 projects got assistance from banks/FIs with a record high total cost of projects of ₹3,90,978 crore, as compared to 547 projects sanctioned during the previous year having total cost of ₹2,66,546 crore (Annex Table A1).

During 2023-24, 438 private companies, which did not avail of any financing from banks/FIs for capex projects, raised ₹1,68,396 crore through ECBs for capex purpose, while 123 other companies raised ₹6,310 crore through domestic equity issuances under the initial public offering (IPO) route for funding their capex needs. Overall, investment plans of 1,505 projects were made during 2023-24, with record investment intentions of ₹5,65,684 crore, as against 982 projects in 2022-23 with investment intentions of ₹3,51,276 crore (Annex Table A1-A4).

i) Size-wise

The size-wise distribution of projects showed a noticeable increase in the number of projects across various sizes. During 2023-24, eleven mega projects (with project cost ₹5,000 crore and above) and 77 large projects (₹1000 crore-₹5000 crore), got sanctioned by banks/FIs, having share of 21.7 per cent and 37.1 per cent of total project costs, respectively. Any deviations from the phasing plans of these mega/large projects can affect the overall capex pattern in the medium-term (Annex Table A5).

ii) Purpose-wise

Investment in green field (new) projects accounted for the lion share of about 89 per cent in the total cost of projects financed by banks/FIs during 2023-24, in line with the recent trends, which points to likely capacity expansion by private corporates going forward. Investment in expansion and modernisation of existing projects accounted for 8.6 per cent share in the total project cost (Annex Table A6).

iii) Industry-wise

Industry-wise distribution of projects sanctioned during 2023-24 indicates that the infrastructure sector⁴ remained the major sector accounting for 55.5 per cent share in the total cost of projects, primarily driven by investment in ‘Roads & bridges’ and ‘Power’ (Annex Table A7). Beside infrastructure, among the other major industries, metal & metal products, construction, electrical equipments, and food products also accounted for a sizable share in the total cost of projects (Chart 1 and Annex Table 7).

iv) State-wise

The state-wise distribution of projects sanctioned revealed that the top five states viz., Gujarat, Maharashtra, Karnataka, Andhra Pradesh and Uttar Pradesh together accounted for about 55 per cent of the total cost of projects sanctioned during 2023-24 (Chart 2 and Annex Table A8)⁵.

IV. Phasing Profile of Investment Intentions

The phasing profile of capital expenditures of projects sanctioned by banks/FIs till the end of the financial year 2023-24 provides near-term (one year ahead) investment outlook of private corporates. The phasing from the cohort of projects in 2023-24 indicates that about 54 per cent (₹2,12,266 crore) of the total proposed capital expenditure was planned to be invested by the year-end, while 29.7 per cent (₹1,15,928 crore) is planned to be spent in 2024-25 and another 16.1 per cent (₹62,783 crore) in the subsequent period. Based on the phasing profile of projects sanctioned by banks/FIs till 2023-24, the envisaged capex recorded a significant increase of 41.7 per cent to ₹2,80,975 crore during 2023-24 (Annex Table A1).

Resources raised through the ECB and IPO route by private corporates supplement the financing of their investment activities. From the funds raised through the ECB route for the capex purpose during 2023-24 and the prior period, capital expenditure planned to be made during 2023-24 more than doubled to ₹1,16,073 crore as compared with previous year. Also, planned capex from the fund raised through IPO route increased to ₹6,138 crore in 2023-24, though its share in total envisaged capital expenditure remained miniscule (Annex Table A2 and A3).

Overall, based on the various channels of fundings, as alluded earlier, total capital investment of ₹4,03,186 crore was intended to be made by the private corporate sector in 2023-24, significantly higher (56.6 per cent) than the planned capex during the previous year, led by the rise in total funds for projects sanctioned by banks/FIs and funds raised through the ECB route. The phasing profile of the envisaged capex, based on the pipeline projects⁶ sanctioned by the banks/ FIs in the previous years prior to the reference year, indicate that the envisaged capital investment is expected to increase from ₹1,17,182 crore in 2023-24 to ₹1,68,176 crore in 2024-25; taking into account all channels of financing, the total envisaged capital investment is estimated at ₹2,45,212 crore in 2024-25 as against ₹1,59,221 crore in 2023-24 (Annex Table A1 and A4).

V. Conclusion

The significant rise in envisaged capital investment of private corporates, based on the projects sanctioned by banks/FIs during 2023-24, points to upbeat investment cycle. The total cost of projects sanctioned by banks/FIs increased to a record high of ₹3,90,978 crore. Infrastructure sector continued to attract the major share of envisaged capital investment, led by ‘Roads & Bridges’ and ‘Power’ sectors, reflecting the government push towards infrastructure development. Of the total cost of projects envisaged during 2023-24, 54 per cent was planned to be invested by the end of financial year 2023-24, 30 per cent is provided for 2024-25 and the remaining 16 per cent is envisaged to be invested in the subsequent years. The phasing profile of pipeline projects finance through all the three channels suggests that the envisaged capex could increase significantly to ₹2,45,212 crore in 2024-25 from ₹1,59,221 crore in 2023-24.

Healthy balance sheets of both corporates and banks, improved corporate profitability, sustained credit demand, rising capacity utilisation, and optimism in business sentiments as reflected in the forward-looking enterprise surveys conducted by the RBI as also by the other agencies, provide conducive environment for private corporates to undertake investments going forward. On the downside, global financial market volatility, protracted geopolitical tensions and geoeconomic fragmentation could dampen the investment plans. Overall, the investment cycle is expected to remain upbeat and its sustainability needs to be watched closely.

References:

Rangarajan, C. (1970). Forecasting capital expenditure in the corporate sector. Economic and Political Weekly, 5(51), 2049-2051.

^{^} The authors are from Department of Statistics and Information Management. The views expressed in the article are those of the authors and do not represent the views of the Reserve Bank of India.

¹ RBI Annual Report (2023-24) and various monetary policy related forward looking surveys conducted by the RBI.

² Includes all public sector banks, major private sector and foreign banks, and financial institutions which are actively involved in project financing namely, Industrial Financial Corporation of India (IFCI), Life Insurance Corporation (LIC), Power Finance Corporation (PFC), Rural Electrification Corporation of India (REC) and Export-Import Bank of India (EXIM).

³ Analysis of investment outlook of private corporates are regularly released in the form of articles, initially in the Economic and Political Weekly and, since 1989, in the RBI Bulletin.

⁴ Infrastructure sector comprises (a) power, (b) telecom, (c) ports and airports, (d) storage and water management, (e) special economic zone (SEZ), industrial, biotech and IT park, and (f) roads & bridges.

⁵ The projects spread across multiple states have been classified as “multi-state” projects.

⁶ Pipeline projects are those projects which are already undertaken for implementation. Capex from pipeline projects are envisaged amounts for a given year, which got sanctioned prior to that given year.