Eco Survey 2023: Private sector’s capex push to help rekindle animal spirit

Aided by rising capacity utilisation and improving balance sheets, private companies’ investments in capital expenditure have started gaining momentum, which in turn may bring back animal spirits and provide a multiplier effect for the economy, the Economic Survey 2022-23 has said.

Experts, however, cautioned that potential global slowdown and rising inflation could affect this rise in capital expenditure.

According the survey, the economy saw private investments to a tune of Rs 3.3 lakh crore in first six months of FY23, up 50% from Rs 2.2 lakh crore a year earlier.


This increased capital expenditure in the first half is the best in five years and comes after the economy witnessed a slowdown in such spending in FY20 and FY21 when companies were reeling under the pressure of decline in demand and slower economic growth amid the Covid-19 pandemic.

“Evidence shows an increasing trend in announced projects and capex spending by the private players,” the survey noted. “Surveys of leading industry CEOs also reveal their plans and commitment to increasing capex.”

Also, the amount of capital expenditure nearly doubled in past five years, the survey noted. “The strong balance sheet of banks and corporates are rightly assumed to give a private capex push in addition to the government capex push if the assumptions on the external and demand front are realised,” said Sanjeev Krishan, chairperson of PwC in India.

In the eight months ended November 2022, India saw capex investments to a tune of Rs 4.5 lakh crore against Rs 2.7 lakh crore and Rs 2.1 lakh crore, respectively, in the first eight months of FY22 and FY21. Rumki Majumdar, economist at Deloitte India, said private investments are gathering momentum in certain industry pockets.

“Going forward, investment growth could be because of adaptive expectations—expectations for the future influenced by recent experiences,” she said. “Amidst impending global slowdown, it is important to anchor the expectations so that they don’t weigh on private investment decisions.”

Growing capex by both private entities and government has served as a powerful stimulus to industrial growth, the survey noted. Capacity utilisation hit a tipping point of 75.3% in the fourth quarter of FY22 and settled at 74.3% in the first quarter of this fiscal.

Higher capacity utilisation often leads to increase in capital expenditure since the existing capacity may not be sufficient to support the growing demand, prompting companies to expand their capacity.

“Capacity utilisation...has already reached the tipping point of 75.3% in Q4 of FY22, at which investments in building new capacities are undertaken,” the survey said. “New investments announced in the manufacturing sector during April-December of FY23 was five times the corresponding level in FY20,” it added.

In first half of FY23, the economy recorded the highest share of gross fixed capital formation (GFCF) in GDP during first half of a financial year since FY15, the survey said.