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Why India Inc.'s CAPEX Strategy Could Be a Game-Changer?

India Inc.’s CAPEX Dreams: Focus On Returns and Financing Structure, Not Just Expenditure

A quick look at the media and pundits shows the daily debate around CAPEX. Public versus Private? What’s enough? What’s not enough? India can’t drive 21st-century growth using 20th-century economics. The CAPEX debate in India needs to centre on 3 core issues:

1.Where can CAPEX deliver a High Return on Invested Capital?

For both public and private CAPEX, the selection of sectors that can generate returns higher than the cost of capital is paramount. This is the single most crucial factor. Historically, whenever Indian growth has stagnated, it’s been due to CAPEX into low-return projects. The laws of finance are universal, and no business can escape them. Therefore, the focus of the debate should be on high ROIC and sectors with high multiplier effects, as they are the key to sustainable economic growth.

Photo of India Inc's Capex

2. How can CAPEX Financing be structured most efficiently?

The most significant challenge in India Inc.'s CAPEX has been the inflexibility of capital. Among the factors of availability, cost, and flexibility of capital, the lack of flexibility has been a major hurdle. Projects in the IBC or struggling companies are not primarily facing issues due to demand shortfalls or a lack of financing, but rather due to asset-liability cash flow mismatches. On the other hand, successful projects have one thing in common-access to flexible capital. This underscores the importance of efficient CAPEX financing in driving economic growth. 

3. What can policymakers do to boost CAPEX?

Policymakers need to consider how taxation policy and security design can be amended, improved, and introduced to help Indian capital markets develop.

India is at the cusp of a generation-defining growth stage. The CAPEX debate needs to move from focusing on absolute levels, which are opinions, to where the money is, how it can grow, and why the person with the money wants to invest. In a world where intangible assets hold as much sway as tangible assets, CAPEX debates need to catch up.

Disclaimer: In the article "Why India Inc.'s CAPEX Strategy Could Be a Game-Changer?" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.


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