India's Capex Surge: A Path to Sustainable Growth

India's robust capital expenditure is set to grow, fueled by private-sector investments in renewable energy and infrastructure. PhillipCapital highlights the government's progress in meeting capex targets, despite some challenges such as potential GDP fluctuations and redirection of funds towards welfare programs.

India's capital expenditure cycle is on a robust trajectory, with private-sector contributions expected to amplify this growth further, according to a report by stock broking firm PhillipCapital. Capex refers to investments in long-term physical or fixed assets.

"We believe India's capex cycle is just beginning, with a significant increase projected until FY32," remarked PhillipCapital. Public expenditure primarily targets infrastructure, while private capex focuses on decarbonisation, energy transition, and incentives like the Production Linked Incentive (PLI) scheme.

Industrial credit data and IIP's capital goods index suggest that private-sector capex is poised for expansion. PhillipCapital notes, "Industry capacity utilization is 76% as of Q1FY25, and as it approaches 80%, companies are likely to initiate capex plans." Key sectors include steel, cement, power, oil, gas, railways, defence, EVs, and semiconductors.

The government's National Infrastructure Pipeline (NIP) initially listed projects worth USD 1.3 trillion from 2020 to 2025. However, pandemic-related delays have hindered progress, with 21% of projects completed and 46% underway, according to the July 2024 Economic Survey.

NIP is a refined approach compared to traditional Five-Year Plans, with steady government alignment to capex targets over the past five years. State-level capex shows a promising CAGR of 15.4%, climbing to Rs 9.4 trillion in 2024-25 from Rs 5.3 trillion in 2021-22.

New private capex in decarbonisation, energy transition, and PLI-led projects ranging from renewables to semiconductors is also significant. Geopolitical shifts present India with new sourcing and export opportunities, enhancing its position as a global manufacturing destination.

Challenges remain, notably weaker GDP growth, which may affect budgetary calculations, and a possible shift of funds to welfare programs, impacting capex allocations. (ANI)

(With inputs from agencies.)