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India Inc in capex squeeze

More and more investment proposals are being abandoned amid contraction in consumption demand and difficulties in getting funding.

business Updated: Nov 25, 2008 20:45 IST
Rajendra Palande

More and more investment proposals are being abandoned amid contraction in consumption demand and difficulties in getting funding. As many as 45 projects worth Rs 42,700 crore (about $8.5 billion) were abandoned in the quarter ended September 2008, over and above 50 projects involving about an equivalent amount of investment being given up during April-June 2008.

“Given the uncertainty, both on the global and domestic fronts, this trend of projects being abandoned is expected to continue for the next few quarters,” Citigroup economists, Rohini Malkani and Anushka Shah, said in a note released on Monday.

BNP Paribas Securities, a unit of French bank BNP Paribas, has lowered its estimates of corporate capital expenditure in India for 2008-09 by 35 to 40 per cent. In September 2008, BNP Paribas had said corporate capital expenditure across various sectors in 2008-09 would amount to $76 billion (Rs 3,80,000 crore). But it now expects only $45 to $50 billion to actually fructify.

Vijay Sarathi, analyst at BNP Paribas Securities, said there was “demand destruction in sectors like commodities, real
estate and construction, adding, “Banks are not willing to lend to certain sectors with higher perceived risk and within these sectors, to smaller players due to balance-sheet concerns.”

Investment growth this year would be in single digits for the first time since 2002-03. The average annual growth in investments in the last six years was 17 per cent. “The key thing to watch out for is the trend in investments, where growth decelerated to the single digit range last quarter for the first time since 2002-03. Our full year 2008-09 and 2009-10 GDP estimates of 6.8 per cent and 5.5 per cent factor in investment growth slowing to 7.3 per cent and 4.4 per cent respectively,” Citigroup said.

With fiscal deficit expected to stay level, scope for pump-priming (government boost to demand) remains limited, though infrastructure spending could provide some stimulus, analysts say, adding that scope for foreign borrowings to fund projects are also limited.