Economy
Capex in India: Investment mood returns to slower pace in Q3
Summary
- Investment activity slowed in the December quarter, indicating a continued uneven investment landscape for Indian companies in 2024-25, newly released data showed.
Indian companies are entering 2025 cautiously, with a mixed appetite for committing to new investments. While the value of new investments announced in the September quarter had shown some recovery, the December quarter reverted to a sluggish trend. That said, economists say the data needs to be read with caution.
According to data from the project-tracking database of Centre for Monitoring Indian Economy (CMIE), new projects worth ₹6 trillion were announced across the country during the December quarter—a decline of nearly 22% year-on-year and 16% sequentially. In value terms, both government and private companies scaled back new investment proposals, with the government seeing a sharper decline in momentum.
The data, which reflects the appetite for capital investments, is provisional and subject to revision. Notably, the June quarter also saw a dip, attributed to election-related disruptions.
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“Capex will be patchy, unless there is a strong resolve from the government. With December already gone by, where we have not seen much, the ask is tall," said Anitha Rangan, economist at Equirus.
So far in the first nine months of 2024-25, new projects worth ₹15.6 trillion have been announced, down 27% from the same period in the previous fiscal year. But these figures should be read carefully due to a likely base effect. Madan Sabnavis, chief economist at Bank of Baroda, noted that FY24 data could be “distorted due to the fact that the transport sector had large announcements of aircraft purchases which skewed the picture".
Uneven slowdown
The investment slowdown in the December quarter had varied impacts across key sectors. Manufacturing, traditionally a cornerstone of India’s capital investments, exhibited a mixed performance. While new investments in the sector rose 19% year-on-year to ₹3.3 trillion, they fell from the previous quarter’s ₹3.8 trillion, signalling a loss of momentum.
Construction and real estate were the hardest hit, with new project announcements plummeting by 65% year-on-year. Proposals in the sector dropped sharply to ₹21,351 crore, down from ₹71,741 crore in the previous quarter and ₹60,955 crore in the same period last year.
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In contrast, the electricity and non-financial services sectors showed relative resilience. While both sectors registered a year-on-year decline in investment proposals, their quarter-over-quarter levels remained steady, reflecting sustained capital commitments.
Green projects retreat
The December quarter marked a notable shift in sectoral focus compared to the first half of the fiscal year. While green energy projects dominated new investments in the April-September period, the December quarter saw only one renewable energy project announcement, valued at ₹36,700 crore.
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In contrast, the steel and chemical sectors took centre stage, driving three of the five largest investments of the December-ended quarter, collectively worth ₹2 trillion. Among these, Nippon Steel's two-phase project in Andhra Pradesh’s Nakkapalli stood out, with the first phase valued at ₹55,964 crore and the second at ₹80,000 crore.
Besides these projects, a Raigarh-based data centre project valued at ₹30,000 crore was also among the largest investments announced. Collectively, the top five projects accounted for nearly 44% of the total project pipeline in Q3.
Falling behind
Project completion rates also saw a sharp decline in the December quarter, with the value of completed projects dropping to ₹91,952 crore—a steep 52% fall from ₹1.9 trillion in the same period last year.
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This marks only the second time since September 2021 (the pandemic period) that quarterly project completions have fallen below ₹1 trillion. The first such dip occurred in the June quarter of 2024, when national elections temporarily disrupted project progress.
The Mazagon guided missile destroyers project in Mumbai, valued at ₹29,644 crore, was the largest completed project of the quarter, contributing over one-fifth of the total project completions during this period.
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The coming quarters will be crucial in determining whether this investment slowdown is temporary or indicative of deeper structural challenges in India's capital formation landscape. “Capex is necessary to drive growth, otherwise a slower demand will result in lower fiscal collections and become a circular problem for fiscal consolidation," Rangan said.
