MUMBAI, Oct. 2
India’s capital expenditure momentum weakened in the September quarter as announcements of new government and private-sector projects declined sharply from the preceding three months, while project completions also slowed amid geopolitical uncertainty, higher input costs and rising global financing costs.
Provisional data from the Centre for Monitoring Indian Economy showed new project announcements by state and central governments falling 27 per cent from a year earlier and 47 per cent from the June quarter to ₹1.3 trillion.
Private-sector announcements showed an even steeper sequential decline. New projects worth ₹8.8 trillion were announced during the September quarter, down 49 per cent from the previous quarter and 2 per cent from the corresponding period last year.
The quarterly slowdown follows an unusually strong April-June period, when nearly ₹20 trillion worth of new projects were announced.
As a result, new project announcements for the first half of FY27 remain higher than a year earlier despite the loss of momentum during the September quarter.
Project announcements are closely watched as an indicator of investment intentions, although announced expenditure does not necessarily translate into actual investment.
The slowdown was also visible in project completions, which declined compared with both the June quarter and the corresponding period last year.
The weakening came against a backdrop of increased tensions in West Asia and a more uncertain global investment environment.
Madhavi Arora, chief economist at Emkay Global, said the factors affecting private investment in the immediate future could increasingly be global.
Geopolitical uncertainty, rising global capital costs and higher raw-material and input prices are among the pressures confronting businesses considering fresh investment.
Energy costs have also emerged as an important variable following the Iran war and the resulting rise in crude oil prices.
The impact on domestic demand was moderated to some extent by the government and oil marketing companies absorbing higher crude costs rather than allowing the full increase to immediately reach consumers.
Businesses have received support from other areas of the economy as well.
Lower goods and services tax has provided some tailwind, while bank financing has become comparatively cheaper than non-bank funding. Credit-growth trends also indicate that companies are increasingly turning to banks to meet financing requirements.
The investment picture differs significantly between sectors.
New project announcements in manufacturing declined 32 per cent year-on-year during the September quarter, while construction and real estate recorded a fall of more than 21 per cent.
Mining, electricity and services moved in the opposite direction, recording higher levels of new project announcements.
Power, semiconductors, electric vehicles, metals and mining, and real estate are among the sectors likely to be important in determining the direction of private investment in the coming quarters.
Government capital expenditure will also remain central to the broader investment cycle.
The Union Budget presented in February increased the Centre’s capital expenditure allocation by 9 per cent to ₹12.2 trillion for FY27.
Economists expect the central government to meet its capital expenditure target, although spending by state governments has been slower.
Data from the Comptroller and Auditor General have previously indicated that states were slow in deploying their capital expenditure allocations.
The private-sector picture is more nuanced.
Bank of Baroda Chief Economist Madan Sabnavis expects private investment momentum to continue but sees it remaining concentrated in selected areas, particularly infrastructure-related sectors and heavy industries.
That concentration means headline investment numbers may not necessarily translate into a broad-based capital expenditure cycle across the economy.
There are nevertheless indicators suggesting that the September-quarter slowdown may not signal a deeper retreat in corporate investment.
The Reserve Bank of India’s September monthly bulletin projected healthy double-digit growth in private capital expenditure during FY27.
The central bank has also pointed to the dominance of greenfield investments in the project pipeline as evidence of continuing capacity expansion and confidence in the medium-term growth outlook.
Capacity utilisation remains another supportive indicator.
The RBI’s Order Books, Inventories and Capacity Utilisation Survey showed utilisation remaining above 75 per cent, a level that can encourage companies to consider additional capacity when demand remains sufficiently strong.
The investment outlook therefore presents two contrasting signals.
The September-quarter data show a clear loss of momentum in fresh announcements and project completions after an exceptionally strong June quarter. Manufacturing and construction have also recorded sizeable declines in new investment announcements.
At the same time, first-half project announcements remain ahead of last year, corporate credit demand is strengthening, capacity utilisation remains above 75 per cent and the RBI continues to expect double-digit growth in private capital expenditure during FY27.
The coming quarters will show whether the September slowdown represents normalisation after the unusually strong June quarter or develops into a more sustained moderation in India’s investment cycle.
Much will depend on global geopolitical conditions, energy and input costs, financing conditions and whether investment broadens beyond infrastructure and a relatively small group of capital-intensive industries.
