An increase in public sector expenditure and an upturn in capital replacement cycle are driving investment in India, and it will take a while for private investment to show a sustainable revival, according to a report by Moody’s Investors Service.
“India’s investment story is showing nascent signs of recovery. Nevertheless, a broad-based and sustainable revival in the private sector capital expenditure cycle will likely take longer to materialise, given high corporate leverage, asset quality concerns in the banking sector, and subdued external demand,” according to the report. The government’s investment efforts in areas such as transport and power infrastructure, if effectively implemented, could spur private investment, which in turn will accelerate planned capital expenditure.
India’s economy was forecast to grow forecast at 7 per cent for 2015 and 7.5 per cent for 2016 “which take into account a slower investment recovery,” according to the report.
Some of the basic parameters of recovery were looking better. Growth in the production of capital goods has picked up, according to the data. “Domestic sales of medium and heavy vehicles are on a clear uptrend, having clocked double-digit growth for 12 consecutive months.”
The manufacturing sector in India is unlikely to increase its capital expenditure in any significant manner in the near-term due to the poor state of global demand, weak commodity prices and low capacity utilisation.
“We are forecasting GDP growth of 2.8 per cent in the G20 economies in 2016, with recovery expectations in the U.S. offset by slower growth in China and other emerging markets and a sub-par recovery in the euro area and Japan.”