Indian Firms Shift to Internal Funds as Debt Growth Slows

Indian companies have significantly slowed their debt growth, indicating a shift towards using internal funds for expansion. A Bank of Baroda report notes that non-financial firms' debt rose minimally from Rs 20.7 lakh crore in FY21 to Rs 22.6 lakh crore in FY25. Key sectors like telecom and infrastructure saw notable debt momentum.

Debt expansion among Indian companies has notably decelerated over the last five years, as they increasingly rely on internal accruals for growth. According to a Bank of Baroda report, non-financial corporations saw their debt increase modestly from Rs 20.7 lakh crore in FY21 to Rs 22.6 lakh crore projected for FY25, a compound annual growth rate (CAGR) of just 2.9% compared to the 8.7% CAGR during FY15 to FY20.

The report highlights a varied debt growth trend across the five-year span, peaking at 5.9% in FY21 and 5.7% in FY23, but slowing sharply to 1.4% in FY22 and even declining by 0.7% in FY24 as companies focused on deleveraging. This indicates a shift toward internal funding over external borrowings, notably against a backdrop of increased investment in fixed assets.

Sectoral breakdowns reveal that power, crude oil, telecom, and infrastructure continue to dominate collective corporate debt, with 13 out of 25 sectors analyzed experiencing a higher growth rate than the overall average. Notably, telecom, power, and infrastructure sectors showed robust debt momentum, driven by increased order inflows and boosted government capital expenditure efforts. The report further underscores a weakening connection between debt and Gross Value Added, emphasizing companies' strategic focus on internal resources amid an evolving economic landscape.

(With inputs from agencies.)