How Capex intensive is India?

We have been stressing on increased consumption visibility in our presentations since June this year.

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The market narratives also appear to have increased focus on consumption over that of Investment. Given so much talk around consumption now-a-days, let us delve a bit into Capex instead.

What is Capital expenditure (Capex)?

Money spent on building physical assets like buildings, factories, machinery and even intangibles like Intellectual Property is termed as Capital spending. Capex spending is a very important part of a country’s spending. This focus stems from the high multiplier effect it has on the broad economy. In other words, more capex spending would lead to a disproportionate positive impact on the country’s economic growth. Various academic studies estimate India’s capex multiplier at around 2.5x in the short run and as high as 4.8x in the long run. In other words, every rupee spent on capex can push up India’s GDP by up to Rs.2.5 in the short term and up to Rs.4.8 in the long term. It therefore becomes amply clear that increased capex spending is key to optimise India’s long term growth potential.

What does India’s Capex look like?

25% of India’s Capex come from the Public sector, 33% from the Private sector and the rest 42% from Households. This is measured through Gross Fixed Capital Formation (GFCF), as is the norm. Capex over the last few years have clearly been policy-led, with strong Centre-support, that helped show up in an increased share, to just above 25%.

Public Sector Capex