NEW DELHI: Capital expenditure is fundamental to increasing production and is a catalyst for accelerated economic growth. The government’s first-ever survey on the private sector’s investment intentions underscores the cautious approach taken by the non-government enterprises in investing.
Private corporate sector enterprises are likely to see a 25.5% drop in their capital expenditure (capex) intentions for FY26, the inaugural ‘Forward-Looking Survey on Private Sector Capex Investment Intentions’ released by the National Statistics Office (NSO) has revealed. The intended capex for FY26 is seen lower from FY25intended and FY23 actual levels, but above FY24 and FY22 actual levels. In FY22, actual capex of the units surveyed was Rs 3.95 lakh crore, which went up to Rs 5.72 lakh crore in FY23 but then slid to Rs 4.22 lakh crore, the survey revealed. “This reflects cautious planning after a strong FY25,” it said.
The sample size for the survey conducted between November 2024 and January 2025 was 5,380 enterprises. A total of 2,172 enterprises submitted information for all five years of the reference period, showing an overall 23.9% rise in aggregate capex during FY22 to FY26. The primary objective of the survey is to estimate the capex trends of private corporate sector enterprises in FY22, FY23 and FY24 along with anticipated capital expenditure for FY25 and FY26.
Overall, there was an increase of 66.3% in aggregate capex by the surveyed enterprises over the FY22 to FY25 period, with the highest capex seen in FY25. However, for five years from FY22 to FY26, the growth is just 24%. Intended capex for FY25 is Rs 6.56 lakh crore, a 55.5% year-on-year increase. For FY26, intended capex is lower at Rs 4.89 lakh crore.
The wariness among private entities is despite a deep corporate tax cut in 2019, and the Centre’s efforts to elevate public investments. From FY21 onwards, the Centre’s capex spending surged from Rs 4.3 lakh crore to Rs 11.2 lakh crore in FY25BE. However, in recent years, this came partly at the cost of slower growth in other forms of public capex like such spending by states and central PSEs. To be sure, Centre’s capex as a percentage of GDP went up to 3.4% in FY25BE from 2.1% in FY21.
As per the survey, the estimated provisional capital expenditure per enterprise for purchasing new assets in FY25 is Rs 172.2 crore. Among the sectors, manufacturing enterprises accounted for the largest share at 43.8%, followed by those in ‘Information and Communication Activities’ (15.6%) and ‘Transportation and Storage Activities’ (14%). As many as 49.6% — nearly half — of private sector enterprises undertook capex in FY25 primarily for income generation. An additional 30.1% directed their investments toward upgradation, while only 2.8% focussed on diversification. Nearly 53.1% of the total capital expenditure provisionally incurred in FY25 was for purchasing machinery & equipment. The amount allocated for ‘capital work in progress’ (22%) and purchasing ‘dwellings, other buildings and structures’ (9.7%) had the next highest share of allocation. According to survey estimates, nearly 40.3% of enterprises had planned to undertake capex on core assets in FY25.
The survey indicates that the private sector is cautious in investing because of uncertain times led by evolving global developments and the recent trade and tariff-related uncertainties, weak domestic consumption, especially urban, and muted export demand. Companies are also hesitant to invest as there is still a lot of excess capacity — in manufacturing, capacity utilisation rates fell to 75.4% in Q3FY25 from 76.8% in Q4FY24. Going by current indications, including the early bird Q4 results, demand has not really improved.
Capex tends to rise when enterprises pursue growth strategies rather than maintain current operations. In contrast, it falls when enterprises are hesitant to invest more, fearing a contraction in demand, high borrowing costs, inflation and even geo-political risks. The Budget 2025 has unveiled tax reliefs of Rs 1 lakh crore for the urban middle class to stimulate higher consumption to nudge an upswing in private investment-led growth.
Mirroring a lacklustre state of private investment, data from Centre for Data from Centre for Monitoring Indian Economy also shows actual private-sector capex fell nearly 9% on year to `26.8 lakh crore in FY25, the lowest in three years. To be sure, it is for the second consecutive year that private capex fell on a year-on-year basis, implying the post-Covid pick-up was short-lived.
Moreover, the finance ministry’s March bulletin has highlighted that the uncertainties stemming from global developments constitute a key risk for the growth outlook for FY26. More than trade, the report notes that the perception of prolonged uncertainty may cause the private sector to put its capital formation plans on hold. “The private sector and policymakers must be mindful of this risk and act urgently to avoid making uncertainty feed upon itself,” it said.
Source: The Financial Express
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