The Bank of Baroda in a report has said that in the last five years, the debt of Indian Inc has grown at a compound annual growth rate (CAGR) of 7.4 per cent.
From Rs 62 lakh crore in FY18, the total debt of India Inc. increased to Rs. 75.7 lakh crores in FY20. The pace of increase has slowed down since.
In fact, in terms of year-on-year (YoY) growth, after increasing at an average pace of 10.6 per cent between FY18 to FY20, the pace of growth has come off to just 2.9 per cent in FY21 and FY22.
The report added, “In terms of incremental debt as well, while debt increased at an average pace of Rs 6.6 lakh crore per year between FY18 to FY20, it increased by only Rs 4.4 lakh crore in the next two years.”
During the peak of the Covid-19 pandemic, a phenomenon which gained prominence amongst Indian corporates was deleveraging or a decline in overall debt. Despite lower interest rates, disruptions related to output and demand affected not only production but also investment decisions by companies which led to a decline in overall debt.
Companies either repaid their costly debt or used their own funds to finance investments.
It is to be noted that the finance sector is the dominant one and accounts for nearly 50 per cent of total debt in FY22. After rising by 10.1 per cent in FY19, the growth in debt has slowed down successively in the subsequent years.
In fact, debt actually declined by 1.8 per cent in FY21 and registered a marginal increase of one per cent in FY22. In terms of absolute levels, debt has remained stagnant at Rs 43 to 44 lakh crore in the last 3 years.
“Interestingly, this also coincides with the period of a slowdown in fixed asset creation by these companies,” the report stated.
The company-wise concentration of debt
Notably, the overall debt of India Inc. is heavily concentrated within a few big conglomerates. The report said that the top 100 borrowers accounted for 67.8 per cent and the top 50 borrowers accounted for over 50 per cent of the total debt in FY22.
In fact, in FY22, the top 10 companies accounted for 32.2 per cent of the total debt. For 67, out of the 100 companies, the CAGR of growth in debt in the last five years was higher than the growth in overall debt i.e. 7.4 per cent.