MUMBAI: The next leg of growth for the Indian economy will come from a fresh round of capacity expansion by the corporate sector, according to the State of the Economy Report published by RBI.
The fresh investment is expected to happen with consumer price inflation coming off its Nov-Dec spikes and core inflation dipping to the lowest level since Oct 2019.
Lower levels of inflation increase the corporate sector’s confidence to invest as it provides a stable environment for corporates to plan expansion strategies. Higher prices act as a deterrent to demand.
“Expectations for a fresh round of capex by the corporate sector to take the baton from govt and fuel the next leg of growth are mounting. Balance sheets are healthy on the back of high profits, with leverage remaining constant or improving and the return ratio at a multi-year high,” the report said.
The report said that fixed asset growth is already evident in the oil & gas sector and in chemicals. In sectors such as steel and automobiles – for which stock returns have exceeded index returns – fixed asset additions have, however, been underwhelming. Capex plans of the power sector are the most ambitious, but leverage is high among distribution companies.
The report notes that India is the third largest in the world in purchasing power terms, after China and the US. The observation is based on the Big Mac Index which compares purchasing power by calculating how many burgers would a dollar equivalent in local currency buy in each country.
