India’s capital expenditure growth likely to moderate to single digits: SBI MF report

NEW DELHI: India’s capital expenditure (capex) growth is expected to moderate to single digits over the next two years after witnessing strong growth in recent years, according to a report by SBI Mutual Fund.

The report highlighted that the government’s capex had grown at an impressive 30 per cent compound annual growth rate (CAGR) during FY22-24, significantly boosting the capex-to-GDP ratio. It said, “Given the elevated base of 15 per cent CAGR in last four years (FY22-FY25), corporate capex (public and private combined) is likely to moderate to mid-single digit in FY26 and FY27”.

The report also mentioned that the budgetary support helped push government capex from around 4 per cent of GDP to approximately 6 per cent by the end of FY24. However, with a high base effect in play, overall corporate capex — both public and private — is projected to grow at a mid-single-digit rate in FY26 and FY27.

The report noted that the government’s push for capex had likely reached its peak. Going forward, budgetary capital expenditure may only grow in line with India’s nominal GDP growth. Additionally, state governments could reduce their capex spending to make room for welfare schemes, which may further moderate the overall capex momentum. It said, “Capex to GDP had picked up significantly in 2021-2023, now it appears to be peaking out”.

While government-led capital expenditure appears to have peaked, the corporate order pipeline remains strong, offering some optimism. The report pointed out that while corporate capex growth may not be as aggressive as in previous years, the outlook remains modestly positive.

India’s capex-to-GDP ratio had witnessed a significant increase between 2021 and 2023, reflecting strong investment momentum. However, with government capex stabilizing, this trend appears to be leveling off. Despite concerns about slowing growth, the Reserve Bank of India (RBI) has indicated that private corporate capex intentions remain healthy, suggesting that businesses are still planning to invest in capacity expansion.

The report said, “RBI’s tracking of private corporate capex intentions gives a positive read”. The report signals a potential shift in India’s investment landscape, with corporate spending playing a more crucial role in the coming years as government-led capex slows down. (ANI)