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% year-on-year increase in central government spending, as reported by CareEdge Ratings. While state-level spending declined by 3.8% compared to last year, 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 side, Capex for 1,074 non-financial listed companies totaled Rs 9.4 trillion in FY24, slightly less than the previous year. The report noted that Capex by the central government and major states has been subdued year-on-year, with central Capex contracting by 15.4% and state Capex decreasing by 10.5%.
Rajani Sinha, Chief Economist at CareEdge Ratings, anticipates an increase in Capex for the center and corporate sectors. The subdued Capex was attributed to factors like election-related restrictions, global uncertainties, softer domestic demand, Chinese oversupply, and higher borrowing costs.
Looking ahead, there is potential for recovery in public Capex for the rest of the fiscal year. The private Capex front shows an encouraging order book scenario in the capital goods and infrastructure sector, indicating a likely pick-up in Capex in other sectors. Sinha added that with deleveraged corporate balance sheets, conditions seem favorable for an upturn in the private Capex cycle.
CareEdge Ratings forecasts a compound annual growth rate (CAGR) of 13% 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 strong commitment to renewable energy.
An analysis of order books in the capital goods sector showed a sharp increase of 23.6% in FY24, contrasting with a CAGR of just 4.5% over the previous four years. Investment announcements fell by 29.5% YoY in H1 FY25, with completed projects down by 53% YoY. Q1’s low activity was due to election-related restrictions, but Q2 saw gradual improvement. However, both investment announcements and completions remain below the half-yearly averages of the past decade.
In H1 FY25, the manufacturing sector led with 45% of new investment announcements, while transport (auto and ancillary) and chemicals segments each held a 25% share. Non-financial services led completed projects with a 43% share, dominated by road transport services, although 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 for the country. 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. It’s like when each family member has their own pocket money to spend on things they need.
Corporate Capex -: Corporate Capex is the money that companies spend on buying or improving their assets, like factories or machinery. It’s like when a company buys new computers to help their employees work better.
Election Restrictions -: Election 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 happening around the world that can affect economies, like wars or natural disasters. It’s like when bad weather can change your plans for a picnic.
Renewable Energy -: Renewable Energy is energy that comes from natural sources that can be replenished, like sunlight, wind, or water. It’s like using a solar-powered calculator that doesn’t need batteries.
Power Generation Sectors -: Power Generation Sectors are industries that produce electricity for homes and businesses. It’s like the power station that makes sure your lights and fans work at home.
