India’s public capital expenditure (capex) is set for a potential rebound in the second half of FY25, according to a CareEdge Ratings report. Despite a subdued first half, with central and state capex contracting by 15.4% and 10.5% year-on-year (YoY) respectively, the remainder of FY25 may see improvement as both the central and state governments accelerate their investments.
In H1 FY25, central capex reached only 37% of the budgeted target, while the aggregate state capex achieved 28%. The slowdown in early fiscal spending was largely due to restrictions during the general elections, which led to a 35% YoY dip in central capex to Rs 1.8 trillion and a 21% decline in state capex to Rs 0.8 trillion in Q1. However, a marginal recovery began in Q2 as central capex grew 10.3% YoY, although state spending remained in contraction, declining 3.8% YoY.
The report highlights that some states, including Punjab, Assam, Karnataka, Maharashtra, and Rajasthan, recorded double-digit growth in their H1 FY25 capex. Analysts anticipate this trend could prompt a broader recovery in public investment in the latter half of the fiscal year.
Corporate capex
On the corporate front, aggregate capex for a sample of 1,074 non-financial listed companies amounted to Rs 9.4 trillion in FY24, slightly below the previous year’s level. CareEdge Ratings expects a strong push from the power generation sector, where capital expenditure, particularly in solar and wind energy, is projected to grow at compound annual growth rates (CAGR) of 10.7% and 16.4% respectively from FY25 to FY28.
Order book data for the capital goods sector indicates a promising outlook, with orders rising by 23.6% in FY24. In H1 FY25 alone, order books in this sector saw a 10.3% increase. Infrastructure firms, especially those in road development, experienced a 20.5% boost in new orders over the first half of FY25, mainly from state government contracts, signaling an uptrend in public sector capex.
However, investment intentions remain weak. CareEdge cited CMIE data showing a 29.5% YoY decline in investment announcements and a 53% YoY fall in project completions in H1 FY25. These indicators, although recovering somewhat in Q2, remain below the three-year quarterly average.
The report suggests that renewed momentum in public capex, robust order books in capital goods, and steady growth in the power sector could drive India’s investment landscape in the near term.
