Economy
Govt’s capex appetite in Q4 fails to lift FY25 investment performance
Summary
- New projects worth ₹18.7 trillion were announced nationwide during the March quarter, making up half of the total new projects announced throughout the year. However, this boost failed to elevate the full year’s performance. Mint explores:
India’s investment report card received a significant boost from high-cost government projects in the March-ended quarter, providing a potential last-minute push after a slow year, even as private sector appetite remained subdued. However, despite the upbeat performance in the final quarter, the momentum was not enough to shift the overall sentiment for the full year.
During the quarter, new projects worth ₹18.7 trillion were announced nationwide, accounting for half of the total new projects announced for the entire year, according to provisional data from the Centre for Monitoring Indian Economy (CMIE).
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Investment typically picks up in the final quarter of the fiscal year, often resulting in a sharp increase compared to the previous quarter, though not always on a year-on-year basis. The March quarter’s spike was largely driven by a 117% year-on-year rise in new government projects. In contrast, the private sector saw a 89% sequential increase but only a modest 3.3% rise from the same period last year.
Of the five largest new project announcements, four were made by central and state governments. A major renewable energy project in Madhya Pradesh by state-owned NTPC Ltd alone accounted for 6% of the quarter’s total new project costs, with the top five accounting for 21%.
The quarter may have also been buoyed by several global investor summits, which typically spur announcements and investment intentions, though these don’t always translate into actual investments.
The full picture
The final quarter’s impressive performance—driven by government projects—failed to lift the full-year results and did not signal a revival in private sector capital expenditure (capex) plans. While new project announcements by the government rose by 42.1% in FY25, an 8.8% contraction in private sector investment led to a modest 2% overall increase compared to last year.
“The government has been nudging public sector undertakings (PSUs) to expedite the capex plans given the vast opportunity that is there given the growth potential of the economy," Madan Sabnavis, chief economist at Bank of Baroda.
Although government investment activity remained subdued for much of the year due to disruptions from the national election in April-May, central capex plans gained momentum starting in the second quarter.
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Despite fewer individual projects in the March quarter compared to the September quarter, the high value of those projects contributed disproportionately to the full year's investment figures.
Completions plunge
Weak private sector sentiment was not the only concern; the value of completed projects during the year provided little reassurance. While new project announcements saw a significant uptick, the completion rate took a sharp dive.
According to the CMIE CapEx database, only ₹4.7 trillion worth of projects were completed in 2024-25, marking a four-year low and nearly a 50% contraction from the previous fiscal year.
Economists caution that completed projects were initiated in earlier periods and typically faced delays for various reasons. Among the costliest projects, two were from the defence ministry. These were the Mazagon guided missile destroyers (warship) project worth ₹0.3 trillion, which began in the previous fiscal year and overran by six months, and submarine projects of similar value ( ₹0.3 trillion) completed in January, which had exceeded their timeline by 86 months.
This trend in project completions serves as a warning that the new projects announced in FY25 may face similar delays, pushing actual investments further down the line.
Losing steam
Overall investment in the country, as measured by gross fixed capital formation (GFCF), initially rose significantly as a share of GDP, driven by the Centre’s commitment to supporting the economy through high capital expenditure. However, with the Centre’s capex plans progressing slowly in 2024-25 and private investment remaining lacklustre, the share of GFCF in GDP fell to a three-year low.
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The share of GFCF in overall GDP is estimated to be 33.40% in FY25, down from 33.51% in FY24 and 33.64% in FY23. The Centre’s budget estimate of ₹11.2 trillion for FY26, a year-on-year rise of about 10%, suggests the government’s capacity to do the heavy lifting may have reached saturation.
“The key reason behind slower growth in GFCF is the slowdown seen in private capex spending, leading to a decline in its share within the total GFCF pie," said Sakshi Suneja, vice president and sector head of corporate ratings at Icra Ltd. “Subdued domestic consumption, especially urban, muted export demand, and the influx of cheap Chinese imports in some sectors like iron and steel and textiles, have been constraining private capex."
