Economy
Capex mood picks up in Q2, but revival isn't broad-based
Summary
- Indian businesses renewed their interest in capital investments after a pause during the Lok Sabha elections. However, this revival isn't spread across all industries.
After a slowdown during the Lok Sabha elections, Indian companies’ appetite for new capital investments showed signs of a recovery in the September quarter. The uptick was partly expected, given that companies enter wait-and-watch mode before and during elections. That said, the September quarter still marked a significant turnaround as it ended a year-long decline in investment appetite.
New projects worth ₹5.5 trillion were announced across the country during the quarter, up 43% from the same period a year earlier, showed the latest data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE). With this, growth in new proposals finally broke out of a slump: the past four quarters had seen year-on-year declines of 17-77%. The impressive growth, a six-quarter high, signals renewed confidence among businesses and boosts India Inc’s projects pipeline.
The value of new project announcements had plummeted to a multi-year low in the June quarter as the elections, which lasted nearly six weeks, and the model code of conduct before that brought government activity to a halt. Businesses prefer to wait during this period as they seek clarity on any possible changes in the government.
New investments surged for both government and private companies, with the latter continuing to take the lead in the September quarter. Private companies announced new projects worth ₹4.1 trillion, up 42% from the year-ago period, while the government sector announced ₹1.4 trillion worth of new capital investments, 44% higher year-on-year.
Manufacturing push
Manufacturing continued its dominance among key sectors, with new projects increasing to ₹3.4 trillion, up 145% from a year ago. Other key sectors—electricity, services (other than financial), and construction and real estate—saw new investments worth around ₹60,000-70,000 crore each being announced in the September quarter.
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Construction and real estate witnessed the steepest growth (578%), which came on a low base, while electricity projects saw a second consecutive decline of around 60%.
Sakshi Gupta, economist at HDFC Bank, noted that investment proposals were concentrated in a few sectors. "While manufacturing sectors like electronics and chemicals are seeing traction, partly due to the production-linked incentive (PLI) scheme, the growth isn't yet broad-based," she said. “However, the service sector, real estate, construction, and hospitality, are experiencing robust activity too, not just in major cities but also in Tier-I and Tier-II cities."
Project completed at snail's pace
While new proposals saw an uptick, the completion of existing projects was at its lowest in the post-pandemic period. The value of completed projects increased only slightly year-on-year, and at ₹83,133 crore it was the second-lowest in value terms since the September quarter of 2021.
The Jawaharpur coal-based super thermal power project in Etah, Uttar Pradesh, and the Pune phase 1 metro rail project were the two biggest projects completed in the previous quarter, both ranging from ₹13,000-15,000 crore, according to CMIE’s database.
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An analysis of the previous three election seasons (2009, 2014 and 2019) shows that project completion is typically weak in the September quarter. But this year it saw a mild increase from ₹65,141 crore in the June quarter to ₹83,133 crore, reversing the trend seen during the previous three general-election years.
Green growth
The sustainability theme is evident in new investments. Three of the five costliest projects announced in the September quarter were related to electric or hybrid vehicle manufacturing plants, collectively amounting to ₹73,473 crore. These include one in Chhatrapati Sambhajinagar ( ₹27,200 crore), a lithium-ion battery manufacturing plant in Nagpur valued at ₹25,000 crore, and a car manufacturing plant in Auric City with an estimated cost of ₹21,273 crore.
While India is making strides towards greener projects, the other two projects in the top five were related to oil refinery and inorganic chemical production, accounting for a total of ₹1 trillion.
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As the economy expands and the capex pipeline grows, the challenge lies in ensuring timely project completion to meet ambitious capital expenditure goals. Balancing traditional industries with emerging green technologies will be crucial for a sustainable economic future.
