The value of new investment projects announced grew 43% on-year to Rs 5.5 lakh crore in the just concluded July- September quarter of the current fiscal year, after contracting for the previous four quarters, indicating a prompt capex revival after elections. Sequentially, new projects grew 193% after contracting 86% in the previous quarter.
The value of new investment projects by the (larger) private sector grew 42% to Rs 4.1 lakh crore, not far behind the growth shown by the government sector (44% to Rs 1.4 lakh crore), data from Centre for Monitoring Indian Economy (CMIE) show.
Economists feel the data reflects a quick rebound in investments after the lull caused by the elections. They, however, also cite the low base (-37%), which boosted the Q2FY25 number. What is to be seen is if the post-election momentum will be sustained and accelerated.
The share of the private sector in new investment projects rose to 75% in Q2FY25 after slipping to 53% in the previous quarter, when companies adopted a guarded approach due to the general elections. The share was at an all-time high of 86% in the three months to March last year.
New projects announced had touched an all-time high of Rs 16.6 lakh crore in Q4 FY23 on the back of robust private sector projects of Rs 14.3 trillion. Subsequently, these halved halved to Rs 8.3 lakh crore in Q1FY24, and dropped further to an all-time low of Rs 1.9 lakh crore in Q1FY25.
While green shoots are visible in projects announced, what’s worrisome is that projects completed contracted 55.3% in Q2FY25, for the second quarter in succession. Projects dropped, however, improved in the quarter — from a high of Rs 6.2 lakh crore in Q4FY24, it halved to Rs 3 lakh crore in Q2FY25.
Madan Sabnavis, chief economist, Bank of Baroda, says the year-on-year rise in new projects shows that capex is gathering momentum, post-elections. “Q1FY25 was slack due to elections as firms we in wait-and-watch mode. It looks like the momentum will sustain.”
Radhika Piplani, chief economist, DAM Capital, says there is definitely a catch-up following the election lull, but the increase in new project announcements isn’t particularly stark. “The rise seen in the September quarter reflects a normalisation from a low base rather than a sharp pick-up.” However, she adds that the tailwinds to India’s capital expenditure, through initiatives like Make in India, the PLI for manufacturing, and improvements in the business environment, remain strong.
The rise in the value of new investment projects announced in the quarter ended September was driven by the manufacturing sector. It reported a year-on-year growth of 145% and accounts for 62% of the total projects announced. Within manufacturing, chemicals and transport equipment reported high on-year growth of 774% and 860%, respectively.
Paras Jasraj, senior analyst, India Ratings, with the consumption demand picking up in FY25, the investment demand is expected to remain steady and strong with broad-basing in the private sector.