The answer to the above question will have to be a lot more sector-specific. For example, sectors like steel and aluminum as well refining have seen substantial investments in capacity expansion. But we could see expansion of capacities in sectors like upstream oil, capital goods, alternate power, etc. There will be two key considerations in this CAPEX decision of companies.

Firstly, the CAPEX decision will be largely based on the cost of funds. Post the IL&FS crisis, even the blue chips have been forced to borrow money at very high rates of interest. This high cost of funds has not been in the larger interest of capital expansion as the high cost of funds is increasing the hurdle rate of most capital projects and the IRR does not justify such a steep cost of funding at this point in time. The cost of funding will have to come down sharply if capital investments have to take off.

Secondly, there needs to be a lot more clarity on the special concessional tax on new project investments. The government had announced that any new manufacturing project set up between October 2019 and March 2023 will be charged to tax at a concessional rate of 15%. Of course, no exemptions and rebates will be available but at a 15% tax rate with zero-MAT, such tax rebates will not even be required. These two factors will be critical in giving a push to the capital cycle.