New Delhi: According to a report by SBI Mutual Fund, the growth of capital expenditure (capex) in India is anticipated to slow to single-digit rates over the next two years following a period of robust expansion.
The report noted that government capex experienced a remarkable compound annual growth rate (CAGR) of 30 percent from FY22 to FY24, which has significantly enhanced the capex-to-GDP ratio.
It stated, "Considering the high base of 15 percent CAGR over the past four years (FY22-FY25), corporate capex—encompassing both public and private sectors—is expected to moderate to mid-single digits in FY26 and FY27."
Furthermore, the report indicated that budgetary support has propelled government capex from approximately 4 percent of GDP to around 6 percent by the conclusion of FY24.
However, due to the influence of a high base, the overall corporate capex, including both public and private sectors, is projected to grow at a mid-single-digit rate in FY26 and FY27.
The report emphasized that the government's emphasis on capex may have reached its zenith, suggesting that future budgetary capital expenditure is likely to align with the growth of India's nominal GDP.
Additionally, state governments might curtail their capex spending to allocate funds for welfare initiatives, which could further dampen the overall capex growth trajectory.
It concluded, "Capex to GDP saw significant increases from 2021 to 2023, but it now seems to be reaching its peak."
Government-driven capital expenditure seems to have reached its peak, yet the corporate order pipeline continues to show strength, providing a sense of optimism. The report highlighted that while the growth of corporate capital expenditure may not match the aggressive rates of previous years, the overall outlook remains cautiously positive.
Between 2021 and 2023, India's capex-to-GDP ratio experienced a notable rise, indicating robust investment activity. However, as government capital expenditure stabilizes, this upward trend appears to be plateauing.
In spite of worries regarding a slowdown in growth, the Reserve Bank of India (RBI) has signaled that intentions for private corporate capital expenditure remain robust, indicating that companies are still inclined to invest in expanding their capacities. The report noted that "RBI's monitoring of private corporate capex intentions presents an encouraging perspective."
This report suggests a potential transformation in India's investment environment, with corporate spending expected to assume a more significant role in the years ahead as government-led capital expenditure diminishes.
