Funding is available, yet private capex is tepid: Why businesses are cautious

The RBI compiles this data from project approvals reported by banks and financial institutions (FIs), supplemented with information on equity and debt raised by companies and foreign currency borrowings.

External shock

Capex, whether for a new plant or expanding an existing one, is typically spread across years. Therefore, total capex for any given year falls into two categories: expenditure on projects planned in earlier years but budgeted for that year (what the RBI calls ‘pipeline projects’), and projects planned in that specific year (‘new projects’).

The main concern from the RBI data is that total capex, despite exhortation from the government, was essentially flat in 2024-25.

Data for 2025-26 is not comparable with earlier years since it only covers pipeline projects, with data on new projects yet to come in.

The likelihood that capex this year will recover faces a key uncertainty in Donald Trump’s tariffs on Indian exports to the US, which affects sectors like textiles, gems and jewellery. Few things affect companies’ willingness to stick their necks out on capex than policy uncertainty, especially from policies the Indian government has little control over.

Pros and cons

The more crucial of the two heads, arguably, is planned investment proposals by companies on new projects, as these provide visibility on how capex is likely to evolve. If the rate at which companies announce new projects falls, this doesn’t just affect capex in that year, but in the years ahead, too.

If capex is to grow at a healthy rate year after year, a flat rate of new investment announcements in any given year has to be offset by correspondingly higher new investments in future years.

This is where the RBI itself admits that investment optimism is ‘tepid’. Investment intentions in projects announced by the private sector and financed from all sources fell in 2024-25.

“Lower investment announcements amid uncertain demand conditions, along with higher cash buffer points to a cautiously optimistic outlook for private investment activity," says the RBI study. However, it adds that companies entered 2025-26 with “healthier balance sheets, higher cash buffer, improved profitability, and greater access to diversified funding sources."

Power charge

Spending on infrastructure has dominated overall private corporate capex over the past decade, with its share ranging between 40% and 75%. Within infrastructure, the power sector leads, especially renewable energy projects driven by government incentives.

According to Projects Today, which tracks fresh investment proposals across the economy, solar and wind energy were the main recipients of funds in the first quarter of 2025-26. While the power sector as a whole saw an 84% increase in Q1 of 2025-26 compared with a quarter earlier, there was a sharp drop in investments in conventional-energy projects like thermal, hydel and nuclear plants.

Further, sectors that have been the focus of the government’s production-linked incentive (PLI) scheme have seen an increase in share of total investment, though this remains in single digits. For instance, the share of the chemicals and pesticides sector in the investment financed by banks and FIs rose from 2.9% in 2023-24 to 7.9% in 2024-25, and electricals and electronics from 1.1% to 4.6%.

State picture

Highly developed, or more industrialised, states continue to garner the lion’s share of fresh investments. Gujarat and Maharashtra accounted for 36.5% of new investments financed by banks and FIs (thus excluding those financed only by market bond issues or equity) in 2024-25, up from 27% in 2023-24.

Significantly, Uttar Pradesh saw a sharp fall in the share of fresh investments announced in the state, and financed by banks and FIs.

According to Projects Today, a substantial proportion of new investment in states like Rajasthan and Gujarat is driven by investment in the solar and wind energy sector. In Q1 of 2025-26, for example, about 85% of fresh investments into Gujarat were in solar and wind energy. Rajasthan also registered similar numbers.

Is such a skew towards just one or two sectors healthy? The RBI study notes that the share of infrastructure-related projects in the total cost of projects was the “lowest in the last 10 years".

Private weakness

The broader context is the declining importance of private corporate investment in the overall economy. From a high of over 40% share of the total fixed investment in the economy in 2015-16, the private sector’s share declined to 33.6% in 2023-24. Most of that slack has been picked up by a corresponding increase in fixed investment by households—in other words, people building houses.

The RBI feels that even if optimism is weak right now, conditions are ripe for it to pick up. Over the past decade, companies have substantially deleveraged. But the main stumbling block isn’t the supply side— funding is available. Rather, it is the uncertainty caused by Trump tariffs and weak domestic demand.

According to the Projects Today study, external headwinds are likely to continue clouding the investment climate for some time. “As a result, private sector players may remain cautious, opting to delay new capacity expansion decisions in favour of focusing on the execution and completion of their ongoing capital expenditure programmes," it added.

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