K. V. Srinivasan
Chief Executive Officer
Reliance Commercial Finance
2015 was the year of financial consolidation and tighter cash flow management. Capacity expansion and other capital expenditure were muted and over all loan growth in the economy slowed down to single digit percentage.
With various initiatives taken by the government for reviving the infrastructure sector and initiatives such as ‘Make in India’ we expect a boost to the capital expenditure (capex) cycle. This should give considerable growth opportunities for entrepreneurs for growth in various sectors.
The key growth parameters for the financing sector in 2016 will be:
Capex by public sector companies is expected to pick up marginally owing to increase in capital spending by the government (particularly in the roads & railways sectors), though a complete turnaround in India Inc's investment cycle is likely to be slower in the next couple of quarters. Firms continue to operate at low capacity utilization levels. According to the Reserve Bank of India’s (RBI) latest capacity utilization survey conducted in September, utilization levels were at near 71% in the first quarter of the current fiscal. Demand has not significantly picked up and the firms have shifted their focus on completing their existing projects and on reducing leverage. For the moment, companies do not seem to go ahead with their capital expenditure plans.
However, in the long term, quick resolution of land-related issues and other on-ground factors impacting stuck projects, passing of goods and services tax (GST) bill would support the capex cycle.
Index of Industrial Production (IIP)
The index of industrial production (IIP) picked up in the second quarter (Jul-Sept) of the current fiscal year . However, all indicators are not positive . While urban consumption is showing signs of a pick-up in some areas, rural demand has been weakened by two consecutive deficient monsoons and slowing construction activity. In October, a favourable base effect arising from a shift in the festive calendar led to a sharp improvement in the performance of the IIP, with a growth of 9.8%. Pick up in rural demand would depend upon monsoons in 2016
As per Government data, India's GDP growth is estimated to grow by 7.4% in the second quarter (July-Sept) of the current financial year against 7% in the previous quarter (Apr-June), supported by increase in industrial activity and pick up in investment demand and government consumption. During Q2FY 15, GDP growth was estimated to be at 8.4%.
Government, in its 'Mid-year review 2015-16', has lowered India’s GDP growth projection for the current year to between 7-7.5% against the earlier forecast of 8.1-8.5% on account of weak global demand and lower farm output, and called for speedier reforms as well as a review of fiscal and monetary policies to resuscitate economic activity. Also, the growth projection has been cut on account of lower second quarter GDP growth against corresponding quarter a year ago.