Capex to shrink on rising costs: RBI

The Reserve Bank of India said on Tuesday that capital expenditure would be lower than the previous year because industrial growth was likely to soften due to continued input price pressure and escalating cost of capital.

A study by the central bank found that private sector needed to pump Rs 1,07,722 crore as new investment for the aggregate capex in 2011-12 to match the Rs 3,82,641 crore envisaged in 2010-11.

'In all likelihood, capital expenditure in 2011-12 is likely to be lower than the previous year,' the RBI said.

The RBI said capital expenditure already planned to be spent in 2011-12 was Rs 2,74,919 crore and if companies did not deviate from their decisions, the investment pipeline could provide momentum in 2011-12.

No major project cancellations have happened so far. There may not be aggressive expansions but most projects are being implemented without much delays.

Industrial growth in July has slumped to 3.3 per cent and it has been weighed down by capital goods production, which fell year on year by 15.2 per cent from a growth of 38.2 per cent in June. Global debt crisis and expectation of a prolonged slowdown across the world are expected to keep growth muted. The cost of projects, which were sanctioned institutional assistance in 2010-11, is only Rs 4,60,303 crore, marginally higher than Rs 4,55,968 crore envisaged in 2009-10.

The investment plan was led primarily by high-value projects (which cost over Rs 1,000 crore each) envisaged in power, metal, metal products and telecom sectors. Spatial pattern of projects proposed during 2010-11 revealed that Chhattisgarh was the most preferred state and it captured 14.9 per cent of total investment intentions, followed by Andhra Pradesh, Gujarat and Karnataka.

The RBI study captured investment intentions of 796 projects, each with project cost of Rs 10 crore and above, and sanctioned assistance by banks and financial institutions in 2010-11 amounting to Rs 4,60,303 crore. In addition, it captured investment intentions of Rs 31,648 crore proposed by 302 companies contracting external commercial borrowings (inclusive of foreign currency convertible bonds) and Rs 2,094 crore intended by 30 companies issuing domestic equity capital during 2010-11. Together, new investment intentions of 1,128 projects covered in 2010-11 came to Rs 4,94,045 crore spread over 2008-09 to 2016-17.

According to the previous study released in August 2010, the cost of projects that were sanctioned institutional assistance during 2009-10 was Rs 5,56,011 crore. However, on account of cancellation of 42 projects during the current year, the cost of projects has been revised to Rs 4,55,968 crore.