India Inc loosens purse strings as economy looks up

As consumer demand improves, India Inc is getting bullish on the domestic economy and manufacturers have drawn up extensive capital expenditure plans to invest in products and capacity to be ready for future demand.

During the past quarter, 23 companies analysed by ET across the cement, steel, tyres, automotive and chemicals industries have announced cumulative capex plans upward of ₹1.75 lakh crore, with the bulk of it to be spent in FY22.

Several favourable factors — reduction in the real interest rates, availability of sufficient capital due to better cash-flows and global liquidity, global demand and a commodity super cycle — are boosting capex demand across industries.


Leading bankers in the country said that corporate loan growth was anaemic for the last couple of years — first due to lack of demand, and later because of large loan guzzling companies shifting to the bond market. There are now early signs of revival in corporate lending.

For example, Bank of Baroda reported a year-on-year fall of 10% in corporate loans as the bank shed low yielding loans in the first quarter. But chief executive Sanjiv Chadha said he expects loan growth to pick up this year, which will help his bank expand the loan book 7-10%, including a 5-7% growth in corporate loans.

“Retail loans will still grow faster than corporate loans, but we are seeing an uptick in demand from road projects, city gas projects and renewable energy projects which will help demand for loans,” Chadha said.

Indraprastha Gas (IGL) invested close to ₹1,000 crore last year and has a plan to spend around ₹2,000 crore in FY22. The company plans to set up around 120 CNG stations and connect nearly half a million homes.

Yet another leading gas distribution company, Adani Total Gas, has planned a capex of ₹1,200 crore-₹1,400 crore in 2021-22. Last year, the company had said that it has plans to invest around ₹5,500 crore in five years for capital expenditure.

While several industries have marked a return to their usual annual capex cycles after a dip last fiscal on account of Covid-19, cement and tyre makers were particularly increasing their capital spends to build additional capacity.

Interestingly, many of these companies have not fully utilised their existing infrastructure, but they expect to run out of capacity over the next 18-24 months. Some have even announced capex to increase their geographic reach across India. Cement makers such as UltraTech, Dalmia, Ramco and Ambuja have amongst them announced investments of more than ₹13,500 crore, mostly for FY22. The funds will go toward both greenfield and brownfield capacity expansion.

“The additional capacity will be created in the fast-growing markets of the east, central, and northern regions of the country,” UltraTech chairman Kumar Mangalam Birla said in the company’s annual report.

(With inputs from Ashutosh R Shyam)