The proportion of private capital expenditure in the Gross Fixed Capital Formation has dwindled over the years, reaching a ten-year low of 33 per cent in FY24 primarily due to a slowdown in capex driven by unlisted entities.
Following a significant expansion of 23 per cent in FY23, private capex remained stagnant in FY24. Despite a decrease from 28 per cent in FY23 to 12 per cent in FY24, listed entities continued to see growth in capex. It suggests that capex by unlisted entities contracted in FY24, as per an analysis of 4,500 listed and 8,000 unlisted entities conducted by ICRA.
Gross Fixed Capital Formation, which includes the gross addition to fixed assets and intangibles, accounts for approximately 30 per cent of India’s nominal GDP, making it the second largest component after private final consumption expenditure.
From FY15 to FY24, GFCF witnessed a compounded annual growth rate of 10 per cent. However, this growth has been on a downward trend since FY23. While the government’s robust capex push and household investments in real estate contributed positively to GFCF growth in FY24, private capex growth remained sluggish, resulting in a moderation of GFCF growth to 9 per cent in FY24 from 20 per cent in FY23.
K Ravichandran, Executive Vice President & Chief Rating Officer at ICRA, highlighted that private capex was subdued in the last fiscal year and the first 11 months of FY25 due to weak domestic consumption, especially in urban areas, muted export demand, and a surge in cheap Chinese imports in certain sectors, limiting Indian corporates’ capacity expansion plans.
Further analysis reveals that the slowdown is primarily driven by unlisted entities, while listed corporates continue to invest. This has led to an increase in the share of listed entities in the total capex to 16 per cent in FY24 from 14 per cent in FY22.
Corporate cash generation has shown consistent improvement post the Covid shock, with the ratio of cash flow from operations to capex rising to 1.6 times in FY24 from an average of 1.3 times from FY14 to FY20. This has also resulted in a gradual decline in gearing levels to 0.9 times in FY24 from 1.1 times in FY14.
