While investment in India (GFCF) growth improved from FY14, it remained weak for most of FY15. It stayed in a narrow range of 2.4-4.1% y/y in the final three quarters of the fiscal year, after reaching 8.7% y/y in Q1-FY15. This was not surprising, as private investment was slow to materialise despite high expectations from the new government. Still-high corporate-sector leverage (55-56% of GDP) increased NPAs and restructured assets in the banking sector (10.6% of gross advances as of September 2014), low capacity utilisation (c.70% versus above 80% during the boom years), along with low visibility on demand improvement, has kept investment activity weak, notes Standard Chartered.To address these issues, the FY16 budget includes a public investment push of 0.5% of GDP, primarily focused on roads and railways. These sectors have high multiplier effects on the economy – 5x for railways in three years – and are likely to boost investment sentiment and activity levels. Higher transfers of tax revenues to states (0.35% of GDP), as recommended by the 14th Finance Commission, could also boost investment activity if states invest the revenues in capex rather than consumption expenditure.
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