India’s Capital Expenditure Sees Modest Recovery Amid Challenges
In the second quarter, India experienced a modest recovery in capital expenditure (Capex), primarily due to a 10.3% increase in central government spending, as reported by CareEdge Ratings. While state-level spending declined by 3.8%, states like Punjab, Assam, Karnataka, Maharashtra, and Rajasthan showed resilience with double-digit growth in Capex during the first half of the year.
On the corporate front, Capex for 1,074 non-financial listed companies totaled Rs 9.4 trillion in FY24, slightly less than the previous year. Central and state Capex were subdued, with central Capex contracting by 15.4% and state Capex decreasing by 10.5% year-on-year.
Rajani Sinha, Chief Economist at CareEdge Ratings, anticipates an increase in Capex for the center and corporate sectors. The subdued Capex was attributed to election-related restrictions, global uncertainties, softer domestic demand, Chinese oversupply, and higher borrowing costs.
Looking ahead, there is potential for recovery in public Capex, with a promising order book scenario in the capital goods and infrastructure sectors. Deleveraged corporate balance sheets also suggest favorable conditions for a private Capex upturn.
CareEdge Ratings forecasts a 13% compound annual growth rate (CAGR) for Capex in the power generation sector from FY25 to FY28, driven by both listed and unlisted companies. Solar and wind energy segments are expected to grow at a CAGR of 10.7% and 16.4%, respectively, highlighting a commitment to renewable energy.
The capital goods sector saw a 23.6% increase in order books in FY24, compared to a 4.5% CAGR over the previous four years. However, investment announcements fell by 29.5% YoY in H1 FY25, with completed projects down by 53% YoY. Despite a gradual improvement in Q2, both investment announcements and completions remain below the decade’s half-yearly averages.
In H1 FY25, the manufacturing sector led new investment announcements with a 45% share, while transport and chemicals segments each held a 25% share. Non-financial services dominated completed projects with a 43% share, led by road transport services, though new project announcements in this sector were lower at 18%.
Doubts Revealed
Capital Expenditure -: Capital Expenditure, or Capex, is the money spent by a government or company to buy, maintain, or improve its fixed assets, like buildings, vehicles, equipment, or land. It’s like when you save up to buy a new bicycle or repair your old one.
Central Government Spending -: Central Government Spending refers to the money spent by the national government of India on various projects and services, like building roads, schools, and hospitals. It’s like when your parents decide how to spend money for the whole family.
State-level Spending -: State-level Spending is the money spent by individual state governments in India on their own projects and services. Each state decides how to use its money, just like how each family decides what to buy for their home.
Corporate Capex -: Corporate Capex is the money that companies spend to buy or improve their long-term assets, like factories or machinery. It’s like when a shop owner buys a new fridge to store more ice cream.
FY24 -: FY24 stands for Fiscal Year 2024, which is a one-year period used for accounting and budget purposes. In India, it usually starts on April 1, 2023, and ends on March 31, 2024.
Election-related restrictions -: Election-related restrictions are rules that limit certain activities during election times to ensure fair voting. It’s like when your school has rules during sports day to make sure everyone plays fair.
Global uncertainties -: Global uncertainties are unpredictable events around the world that can affect economies, like wars or pandemics. It’s like when bad weather can change your plans for a picnic.
Renewable energy sectors -: Renewable energy sectors are industries that produce energy from natural sources that can be replenished, like solar or wind power. It’s like using a windmill to generate electricity instead of burning coal.
Manufacturing sector -: The manufacturing sector is the part of the economy that makes products in factories, like cars, clothes, or toys. It’s like when you make a craft project at home, but on a much larger scale.
