Falling corporate capital expenditure, slowing rural sales worry CEOs

Representative Image
With corporate capital expenditure falling to a 14-year low and rural sales showing signs of distress, CEOs say the second rate cut by the RBI in 2019 will help companies cut finance costs and reduce debt. But it will not help the slowing investment engine. The next trigger for investment decisions will be the Budget, to be presented by the new government after the general elections.

The other bad news for India Inc is the forecast of below-average rainfall and hardening of crude oil prices. “The outlook is dependent on how India scores against the ‘swing’ of the monsoon or ‘spin’ of global crude oil prices,” said V S Parthasarathy, chief financial officer, Mahindra group. Mahindra had said the growth rate for its tractor sales are expected to fall in FY20 to low single-digits.

High interest rates in the past three years have already taken a toll on the corporate sector. Many failed to repay their debt and had to be referred to the National Company Law Tribunal. Besides, in the past, even though the RBI cut interest rates, it was not passed on.

“The transmission by the banks in terms of reduced lending rates would be crucial to induce demand and industrial growth in the country,” Rajeev Talwar, managing director, DLF, and president of industry lobby group Assocham, said. 

Another worrying sign for India Inc is the lack of new jobs in the formal sector — which, in turn, results in low demand for consumer products and homes. Corporate houses retrenched thousands of workers as they were referred to the NCLT for debt resolution. Many are awaiting loan restructuring package from the banks. “India currently needs a new economic policy that boosts job creation,” said Kiran Mazumdar-Shaw, chairperson and MD, Biocon.

The silver lining for companies is that while global economic growth is slowing down, India is expected to grow at the rate of 7.2 per cent in 2019-20, according to RBI estimates. Domestic GDP growth is also estimated to slow in 2018-19. 

“While bank credit is growing at 14.3 per cent, it is not broad-based. Bank credit to micro and small industries, which are critical to employment and exports, was flat (0.6 per cent) as also credit to medium industries (0.7 per cent),” the RBI said. 

“What needs to be done now is to reduce interest rates further, so that entrepreneurs can get access to cheaper capital,” a telecom firm’s CEO said.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel