Healthy economic momentum in the first quarter of 2026-27 was being corroborated by high frequency macroeconomic indicators and strong quarterly corporate results. Still, the quarter’s GDP growth of 7.8% turned out higher than market expectations. Specifically, India’s sharp growth in gross fixed capital formation (GFCF) has led to expectations of a pick-up in investment-led economic expansion.
Investment in the Indian economy as reflected by GFCF recorded a strong growth of 11.9% in the first quarter of 2026-27. This is an acceleration from the growth of 10.5% recorded in the fourth quarter of 2025-26 and average growth of 7.5% in the previous three quarters.
The government’s capital expenditure has played a role in this strong investment momentum. The Centre’s capex has grown by 30% in the first four months of the current fiscal year. Looks like the government is front loading its outlay, having already spent 37% of its budgeted capex of ₹12.2 trillion in the first four months. There has been an improvement in state-level capex too.
The aggregate capex of India’s top 20 states recorded growth of 7% to ₹1.2 trillion in the first quarter of 2026-27. Gujarat, Madhya Pradesh, Uttar Pradesh and Maharashtra have been leading capex. We have also seen strong growth in capex by Andhra Pradesh, Rajasthan, Kerala, Assam and Telangana in the first quarter of 2026-27.
Now the big question is if there has also been a pick-up in private capex. Capacity utilization (seasonally adjusted) for the manufacturing sector has hovered around 75% as of the fourth quarter of 2025-26.
The intent of the private sector to invest is strong, with investment projects announced more than doubling in the first quarter of 2026-27 compared to the previous year’s corresponding period, as per Centre for Monitoring Indian Economy data. Investment projects completed in this period by the private sector have also shown an improvement with 26% growth, year-on-year.
Private investment has been led by sectors like road transport infrastructure, housing construction, renewable energy, power, steel, cement, automobiles, electronics, semiconductors and data centres.
Investment in some of these sectors continues to be bolstered by the government’s production-linked incentive scheme. Sectors like road building and construction have a strong multiplier effect and thus the capability to pull in more investment, going forward.
Another parameter that’s showing optimism is bank credit demand, with credit to large industries growing by 18% year-on-year in July, in contrast with a feeble 1.6% growth recorded that month in 2025. Part of this robust bank credit demand could reflect higher investment demand in the economy, even while a part of it can be explained by higher working capital needs.
However, with rising bond yields, corporate bond issuances have remained weak, falling by 11% in April-August 2026-27, thus sending mixed signals on a broad investment pick-up in the economy.
Foreign direct investment (FDI) in the economy has broadly remained resilient despite global uncertainties. Gross FDI has grown by 8% to $30 billion in the first quarter of 2026-27, as per Reserve Bank of India. This data includes greenfield, brownfield and private equity inflows. Announced greenfield FDI was healthy at $74 billion in 2025, though lower than $111 billion worth of announcements made in 2024, as per Unctad.
There was a fall in announced greenfield projects in the manufacturing sector, while those in the services sector rose marginally. These announcements have focused on sectors like electronics, renewable energy and data infrastructure.
It is interesting to look at the bifurcation of India’s GFCF institution-wise, though this data comes with a lag of more than a year. In 2024-25, the slice-up of shares was around the same as in previous few years.
The household sector (unincorporated enterprises included) has the largest share of 44% in total investment. This would mainly include money invested in dwellings and investments by micro-enterprises. Investment by the household sector grew by 8% in 2024-25 compared to 9.3% in 2023-24.
Investment by India’s private non-financial sector (with a 30% of the total investment) grew by 7% in 2024-25, jumping from 3% growth recorded the previous year. The rest of the investment was accounted for by government and public sector, which kept up its good record of growth in 2024-25, albeit with some moderation.
Overall investment in the economy is showing an improvement. There is increased participation by the private sector in this investment cycle, though there are still some mixed signals. It will be interesting to see if the pick-up is sustained amid an uncertain global environment that features the risk of higher commodity prices, rising inflationary pressure and higher yields in domestic and global markets.
The other question is whether these investments will create jobs. A lot of money is going into sectors like data infrastructure that does not create too many job opportunities. On the other hand, investment in sectors like electronics, transport infrastructure, pharmaceuticals and renewable energy is generating significant employment.
The author is chief economist, CareEdge Ratings.