New Delhi [India], July 27 : Uncertainty around trade deals is emerging as a major factor holding back investment by India's private corporate sector, according to UBS Securities India.
The report attributes the lack of clarity on global trade to countries and pending agreements as a contributing factor to companies' hesitation in investing in long-term capital expenditure (Capex).
"From corporates'/investors' point of view, we believe trade deals do reduce business uncertaintyand uncertainty is one of the factors that has constrained India's private corporate sector from investing," the report added.
Union Finance Minister Nirmala Sitharaman on Saturday expressed concern about the lack of substantial investment by corporate firms despite the capital push by the governments at both the centre and state levels.
Speaking at an event in New Delhi, Sitharaman said, "From government, whether it's the state or the centre, the two powerful instruments with which we can influence investment in the country are government spending and also making policies which are attractive. What I'm not speaking about, and you may probably follow up asking me. Is the Indian private sector investment going in pace with the public investments? The first few years after COVID, probably not."
"In fact, why would I say COVID? In fact, even from 2019, once the twin balance sheet problem was addressed. And the corporate tax was brought down. We can see that the balance sheets of the corporate sector have really become healthier. But today, what observers tell me and what I keep sometimes talking to industries, business leaders, are they sitting over passive investable funds? Meaning investable funds which are being engaged passively rather than invest in producing more in having capacity expansion and so on. So that's an issue which I would obviously want the industry to speak about," the Union Finance Minister added.
Recently, speaking to ANI, Rajiv Memani, President of Confederation of Indian Industry (CII), countered prevailing market sentiment about private capital expenditure, asserting that while there's a perception of a slowdown, private capex is actually taking place across various industry sectors in the country.
Private Capex refers to the investments made by private sector companies in long-term assets like property, equipment, or technology.
These Capex are made with the intention of broadening the company's operations.
While acknowledging a slowdown in the past 6-8 months, Memani attributed this to external factors rather than structural issues.
The private capital expenditure growth in the country registered a Compound annual growth rate (CAGR) of 19.8 per cent in the last five years from FY21 to FY25E.
This growth was driven by key sectors, including oil and gas, power, automobiles, and commodities.
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