If the growth collapse in the US was caused by the high leverage of households, in the case of India, it is the high leverage of the corporate sector which is being made worse by the collapsing rupee. The problem is that while, over a period of 5 years, the process of balance sheet repair for US households is all but done, that for the Indian corporate sector has not even begun. And with India Inc in trouble, overall investment levels in the country have collapsed, from a high of 38.1% of GDP in FY08, gross capital formation was down to 35.6% in FY13—the collapse in GDP growth is a direct result of the investment famine. While the government is hopeful that investment levels will pick up once the Cabinet Committee on Investments (CCI) clears the backlog of stuck projects, RBI’s latest Bulletin points to investment levels for the companies it tracks falling by around 21% in FY13 versus that in FY12—and the R2,92,000 crore investment RBI is talking of in FY13 is likely to be dramatically lower in FY14. Based on the likely plans so far, the companies RBI is tracking—based on loans made by banks and ECBs raised—are going to invest R1,62,000 crore. In other words, another R1,30,000 crore of investments need to be made to even match the FY13 number, something RBI says appears non-achievable.
A State-of-the-Nation report by credit rating firm Crisil on Wednesday puts this in perspective. While lowering GDP forecast for FY14 from 5.5% just two months ago to 4.8% now, Crisil has raised its agriculture GDP projection from 3.5% to 4.5% while lowering industrial GDP from 3.5% to a mere 1%—talk about firing on one cylinder. Even more worrying is what Crisil says about the corporate stress of the 2,481 companies it tracks, companies that account for a third of bank credit to the corporate sector. While Crisil’s number crunching suggests the forex stress is far lower than imagined by most, it points to 36% of the companies being vulnerable to two or more stresses—forex, liquidity or demand-stress. If that number doesn’t look so disturbing, Crisil issues a caveat: its sample does not include very stressed big corporate houses like Essar, GMR, and GVK among others.
For that, you have to read Credit Suisse’s House-of-Debt-Revisited that deals with 10 corporate groups whose share of banking loans has doubled to 13% over the past 5 years.