View: How to reverse the longest downturn in corporate capex
corporate capex clawing back to 13.5% by 2015-16. This upward trajectory was, however, short-lived, with the investment cycle resuming its downtrend as the corporate GCF-to-GDP ratio fell to 10.7% in 2021-22, which was lower than even the ratio seen in 2008-09.
This has been the longest downturn in corporate capex in the last 50 years. Multiple factors have contributed to this protracted decline:
Introduction of structural reforms, such as GST, IBC and Rera. Though these reforms were essential to strengthen India’s long-term growth potential, they created some uncertainty in the short run.
Covid-19, Russia-Ukraine conflict and unfavourable global macroeconomic environment.
Unlike corporate investment, corporate savings have remained stable.
They increased marginally from an average of 9.1% of GDP before NAFC (2003-08) to 10.6% after the crisis. Historically, corporate investment exceeded corporate savings, indicating reliance of the sector on household sector savings (in the form of public issues of equity and debentures, and borrowings from banks and other sources). However, an inflection point occurred in 2016-17, marking the first instance in over five decades when corporate investment moderated to converge with corporate savings.
This trend has persisted.
What explains the decline in corporate capex? Household savings declined from a high of 25.8 % of GDP in 2008-09 to 20% in 2021-22. However, this decrease alone does not explain the decline in corporate capex. At least three other factors point to a lack of interest in capex by the corporate sector.
Buybacks by corporates jumped sharply in 2016-17 and have remained large by historical standards. Irrespective of the motive behind these buybacks, the large
