The new CII President, R Dinesh, has said that private investment is ready to build on moderating input costs and inflation to bounce right back in the next 24 months. After deleveraging their balance sheets during the pandemic, corporate India is poised for take off, he says. However, recent data points to a more nuanced scenario.

A businessline analysis of the earnings scorecard of 3,959 companies which have declared results for the fourth quarter of FY23 is revealing. It shows that profitability is under pressure as companies grapple with high input costs, larger electricity and fuel bills and higher interest rates. The companies (excluding banks and financial companies) have recorded a tepid revenue growth of 8 per cent in the fourth quarter, compared to the same quarter last fiscal year. Slowing consumption as well as declining inflation seem to have impacted realisations. Net profit grew just 4 per cent as margins were eroded by higher expenditure. Aggressive rate hikes by the RBI is reflected in the interest cost registering a growth of 27 per cent in the March 2023 quarter compared to the same quarter in FY22. The banking sector was among the outliers, with some of the larger public sector banks growing their net profits by more than 50 per cent, thanks to lower provisions for bad loans, expansion in margins and higher credit offtake. The IT sector was hit by slowing growth in US and Europe, with some of the larger companies reporting lower profits for the March quarter compared to last fiscal. A similar analysis by Bank of Baroda of 1,797 non-BFSI companies shows that interest-cover ratio fell from 6.45 in Q4 FY22 to 5.82 in Q4 FY23, indicating that the rate hikes are hurting. Of course, the CII President may have a point here, when he says that the worst is over.

Private investment commitments are said to have risen from ₹14.2-lakh crore to ₹29.1-lakh crore in a year. Government infra spend (the Centre’s capex has risen from ₹5.2-lakh crore in FY20 to a budgeted ₹13.7-lakh crore in FY24) is likely to have led to a rise in capacity utilisation in steel, cement and electrical equipment. A 15.9 per cent growth in bank credit in April (y-o-y), as against 15 per cent in March is marked by 7 per cent credit growth to industry in April, against 5.7 per cent in March, with the jump being led by large industry (from 3 per cent to 5.3 per cent). That’s a heartening piece of statistics. The RBI’s latest Annual Report observes that a one percentage point higher growth in bank borrowings increases nominal fixed assets by 0.17 per cent.

But flat growth in private consumption is a demand-side concern. A growth of just 2.8 per cent in Q4 FY23 and 2 per cent in Q3 suggests that pent-up post-Covid demand has run its course and needs support, even as the RBI’s Annual Report says, “Salaries and wages in the corporate sector have registered steady growth in 2022-23.” In all, there are green shoots that need nurturing.

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