Government-run firms drove capex in pre-election year as private sector held back

After a strong rebound in private capital expenditure in the two years following the pandemic, investment by private non-financial corporations stagnated in FY24.

In contrast, capital spending by public non-financial enterprises jumped 33%, while central and state governments increased theirs by 25%.

Private sector share in GFCF hits 12-year low

The shift in momentum underscores the continuing reliance on government-led spending to drive capital formation in politically sensitive periods, with corporate India adopting a cautious, wait-and-watch stance.

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As a result, the share of private non-financial corporations in gross fixed capital formation (GFCF)—which includes investments in fixed assets and intellectual property—fell to a 12-year low of 33.6% in FY24, down from 36.6% the previous year, according to ministry of statistics and programme implementation (MoSPI) data.

Meanwhile, the share of public non-financial institutions rose from 9.7% to 11.9%, and that of central and state governments climbed from 11.2% to 12.9%.

In absolute terms, private non-financial corporations—excluding financial entities like HDFC Bank and ICICI Bank—invested ₹19.9 trillion in FY24, nearly unchanged from the previous year.

Public sector enterprises raised their capital outlays from ₹5.29 trillion to ₹7 trillion, while governments increased theirs from ₹6 trillion to ₹7.63 trillion.

These figures align with a separate capex survey released by the ministry of finance on 29 April, which tracked investment trends of 2,172 large private enterprises.

After a 45% rise in capex in FY23 to ₹5.7 trillion, investment by these companies contracted 26% in FY24 to ₹4.2 trillion.

The survey, however, projects a sharp 55.5% rebound to ₹6.5 trillion in FY25.

Meanwhile, the total investment in fixed assets is estimated to have grown 6.1% in FY25 to ₹62.7 trillion, according to second advance estimates released in February.

To be sure, the Modi administration is now betting on a revival in private sector investment, supported by healthier corporate and banking balance sheets, a pickup in consumption fueled by income tax relief in the FY26 budget, expectations of an above-normal monsoon, and an accommodative monetary policy stance by the Reserve Bank of India.

Private capital expenditure is largely driven by demand, with elections playing only a marginal role, according to experts. The primary constraint in FY24 was weak consumer demand.

“Elections have had a limited impact on the investment cycle. The real drag has been demand-side factors," said Madan Sabnavis, Chief Economist at Bank of Baroda.

“Over the past few years, demand from non-infrastructure sectors like FMCG and consumer durables has stagnated. With limited consumer appetite, there was little need for fresh capex," he said.

In contrast, infrastructure-linked sectors such as steel and cement saw robust investment, buoyed by a construction boom and strong backward linkages.

“Within the private sector, IT and BFSI continued to invest—driven by technology upgrades and expansion plans. But for most other industries, capex will only pick up once demand revives," he added.

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According to a 21 May report by the Bank of Baroda’s Economic Research Department, Corporate investment saw a steady rise in 2024-25, driven largely by infrastructure-intensive sectors.

The report, based on data from 1,393 companies across 122 industries that disclosed balance sheet details in their FY25 results, found that gross fixed assets—including capital work in progress—rose to ₹28.50 trillion from ₹26.49 trillion in FY24, marking an annual growth of 7.6%.

Refineries accounted for the largest share of fixed assets at 31%, followed by telecom services (8.6%), iron and steel products (5.9%), cement (5.4%), and power (4.8%), said the report titled ‘Which industries are investing?’

Together, these five sectors comprised 56% of the total fixed assets, underscoring the central role of core infrastructure industries in capital formation.

The next five industries by share of fixed assets—public sector banks (PSBs), private sector banks (PVBs), chemicals, industrial gases, and non-ferrous metals—collectively accounted for another 14.5%.

Meanwhile, passenger cars, FMCG (household products), pharmaceuticals, IT software, and sponge iron made up another 10.4% of fixed assets.

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To be sure, the central government's capital expenditure (capex) target stands at ₹11.21 trillion, according to the budget estimates for 2025-26, compared to the budget estimates of ₹11.11 trillion in the previous year.

Meanwhile, a senior official said the central government will continue its capex push to support economic growth, maintaining its capital expenditure at around 3.4% of the nominal gross domestic product (GDP) to prop up economic growth.

"Central capital expenditure will remain a key driver of growth till there is a marked pick up in private capex across sectors," the person added requesting anonymity.

A spokesperson of the ministry of finance didn't respond to emailed queries.