Bloomberg
Indian companies probably won’t invest in additional capacity for at least another year as the private sector struggles with sluggish domestic demand and growing protectionism overseas, according to the nation’s largest engineering firm.
“The private sector has excess capacity and markets have shrunk as compared to their plan when these capacities were put up,†said
R. Shankar Raman, the chief financial officer of Larsen
& Toubro Ltd., Asia’s most-valuable construction company. “To expect the priv-
ate sector to put up additional capacity and have larger capacity underutilized does not seem economically feasible for the next one to two years.â€
India boasts the fastest growth among major econo-mies, yet credit to companies is expanding at the slowest pace in a quarter century given corporate indebtedness and lenders battling bad loans. The consumption picture also was muddied after the government’s November decision to cancel 86 percent of currency in circulation led to a cash crunch.
The onus for kick-starting spending has fallen to Prime Minister Narendra Modi’s administration, which is pushing companies to ‘Make in India’ and allocated $59 billion for infrastructure in its recent budget.
L&T, which draws nearly half its revenues from infrastructure and has busin-esses spanning information technology, financial services and defense, is considered a proxy for the broader economy.
Capacity utilization for companies has to increase to about 85 percent from current levels around 65 percent, and international trade needs to also improve for firms consider adding facilities, Raman said.