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. The report noted a year-on-year contraction in central and state Capex by 15.4% and 10.5%, respectively. Rajani Sinha, Chief Economist at CareEdge Ratings, anticipates an increase in Capex for both the center and corporations, despite current challenges such as election-related restrictions, global uncertainties, and higher borrowing costs.
Sinha highlighted potential recovery in public Capex and a promising order book scenario in the capital goods and infrastructure sectors, suggesting a likely increase in Capex in other sectors. With improved corporate balance sheets, conditions appear favorable 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, indicating a strong 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. The manufacturing sector led new investment announcements, while non-financial services dominated completed projects.
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 states in India on their own projects and services. Each state, like Punjab or Karnataka, decides how to use its money for things like local schools or roads.
Corporate Capex -: Corporate Capex is the money that companies spend to buy or improve their own assets, like factories or machinery. It’s like when a shop owner buys a new fridge to keep drinks cold.
Election-related Restrictions -: Election-related Restrictions are rules that limit what the government can do with money during election times to ensure fairness. It’s like when your teacher makes sure everyone gets the same chance to answer questions in a quiz.
Global Uncertainties -: Global Uncertainties are unpredictable events around the world that can affect economies, like wars or pandemics. It’s like when a sudden rainstorm changes your plans for a picnic.
Renewable Energy -: Renewable Energy comes from natural sources that can be replenished, like sunlight or wind. It’s like using a windmill to pump water instead of using electricity.
Solar and Wind Energy -: Solar and Wind Energy are types of renewable energy. Solar energy comes from the sun, and wind energy comes from the wind. It’s like using a solar-powered calculator or a wind-powered toy car.
