New project announcements dropped in the just-ended fiscal as the investment climate turned sour, particularly towards the end of the year, after the war in West Asia rocked global sentiment.
Fresh project announcements slipped 13% to ₹44 trillion in the financial year 2025-26 (FY26), according to data from the Centre for Monitoring Indian Economy (CMIE). It almost erased 16% growth seen in the previous fiscal.
The slowdown was primarily driven by a 58% collapse in the government-led capex announcements, which had jumped 54% in the previous year. In contrast, private investment intentions fell 0.9%, following a rise of 4.3% and 1.2% in the previous two years. This reversal unfolded amid heightened geopolitical turbulence.
“Tariff uncertainty through the first half and a war-led spike in the final quarter prompted companies to defer fresh capex announcements,” said Madan Sabnavis, chief economist at Bank of Baroda. A normalization effect is also at play, as the surge in FY25 investments has triggered both a statistical dip and a natural pause in expansion, said Sabnavis.
A collapse in March
The final quarter, and March in particular, derailed the full-year performance. During this period, both public and private capex announcements plummeted by more than 50% year-on-year.
Aside from a slight softening during July- September period, the year’s weakness was overwhelmingly concentrated in the final months. In fact, this is the second time in the post-pandemic era that a final quarter has seen a year-on-year contraction, according to CMIE data.
The private capex cycle was beginning to show early signs of a turnaround, but the outbreak of the West Asia war in March has clouded the outlook and pushed back any broad-based investment revival, said Debopam Chaudhuri, chief economist at Piramal Finance.
Sectoral slump
The dull capex mood was visible across sectors. The electricity sector turned out to be the worst-hit with a 47% decline, erasing the previous year’s gains of 35%. This was followed by the construction and real estate segment, which witnessed a 33% fall.
Meanwhile, the manufacturing sector showed relative resilience with a more contained decline: projects worth ₹16.5 trillion were announced in 2023-24, down 8.8%. Experts see capex now taking a breather following a wave of heavy investments in sectors such as automobiles and renewables.
However, services (other than financial) emerged as the lone bright spot, bucking the trend with an impressive growth of 41.4% in new investments during the year, the CMIE data showed.
“The composition of capex is shifting toward asset-light, domestic demand-driven sectors, but momentum remains fragile; even consumer-facing segments that saw a post-GST boost in September lost traction by January-February,” Sabnavis added.
Distant dawn?
The current economic climate suggests a broader revival may get longer. “On the private side, the expected broad-based capex revival is likely to see its waiting period stretched, especially in manufacturing and industry,” said Vivek Kumar, economist at QuantEco.
Services, particularly those with low energy dependence or benefiting from a weaker currency, such as export-oriented consulting, business, and financial services, should remain relatively unaffected, Kumar said.
Still, services have a lower capex intensity than manufacturing to move the economy's aggregate needle.
“A services-led capex cycle alone will not generate the scale of employment and productivity gains India needs to fully harness its demographic dividend,” said Piramal Finance's Chaudhuri. “While services continue to drive output growth, their ability to absorb large volumes of semi-skilled labour remains limited.”
Sabnavis flagged a weaker near-term capex outlook, with private players in a wait-and-watch mode and the government facing constraints from lower revenues following excise duty cuts on petrol and diesel, alongside higher subsidy spending. “Q1FY27 could be cold for fresh announcements," he said.