India's Capex Wanes: Q3 Sees Slower Investment Pace
The construction and real estate sectors witnessed a significant decline in new project announcements, while manufacturing showed mixed results.
CapexInvestmentReal EstateManufacturingProject CompletionsReal Estate NewsJan 01, 2025
While the value of new investments in the September quarter showed recovery, the December quarter reverted to a sluggish trend.
Economists caution that the data needs to be interpreted carefully due to provisional and revisionary factors.
According to data from the project-tracking database of the Centre for Monitoring Indian Economy (CMIE), new projects worth ₹6 trillion were announced in the December quarter—a decline of nearly 22% year-on-year and 16% sequentially.
Both government and private companies scaled back new investment proposals, with the government experiencing a sharper decline in momentum.
The data, which reflects the appetite for capital investments, is provisional and subject to revision.
Notably, the June quarter saw a dip, attributed to election-related disruptions.
Anitha Rangan, economist at Equirus, commented, 'Capex will be patchy, unless there is a strong resolve from the government.
With December behind us, where we have not seen much, the ask is tall.'
So far in the first nine months of 2024-25, new projects worth ₹15.6 trillion have been announced, down 27% from the same period in the previous fiscal year.
However, these figures should be read carefully due to a likely base effect.
Madan Sabnavis, chief economist at Bank of Baroda, noted that the FY24 data could be 'distorted due to the fact that the transport sector had large announcements of aircraft purchases which skewed the picture.'
The investment slowdown in the December quarter had varied impacts across key sectors.
Manufacturing, traditionally a cornerstone of India’s capital investments, exhibited a mixed performance.
While new investments in the sector rose 19% year-on-year to ₹3.3 trillion, they fell from the previous quarter’s ₹3.8 trillion, signaling a loss of momentum.
Construction and real estate were the hardest hit, with new project announcements plummeting by 65% year-on-year.
Proposals in the sector dropped sharply to ₹21,351 crore, down from ₹71,741 crore in the previous quarter and ₹60,955 crore in the same period last year.
In contrast, the electricity and non-financial services sectors showed relative resilience.
While both sectors registered a year-on-year decline in investment proposals, their quarter-over-quarter levels remained steady, reflecting sustained capital commitments.
The December quarter marked a notable shift in sectoral focus compared to the first half of the fiscal year.
While green energy projects dominated new investments in the April-September period, the December quarter saw only one renewable energy project announcement, valued at ₹36,700 crore.
In contrast, the steel and chemical sectors took center stage, driving three of the five largest investments of the December-ended quarter, collectively worth ₹2 trillion.
Among these, Nippon Steel's two-phase project in Andhra Pradesh’s Nakkapalli stood out, with the first phase valued at ₹55,964 crore and the second at ₹80,000 crore.
Besides these projects, a Raigarh-based data center project valued at ₹30,000 crore was also among the largest investments announced.
Collectively, the top five projects accounted for nearly 44% of the total project pipeline in Q3.
Project completion rates also saw a sharp decline in the December quarter, with the value of completed projects dropping to ₹91,952 crore—a steep 52% fall from ₹1.9 trillion in the same period last year.
This marks only the second time since September 2021 (the pandemic period) that quarterly project completions have fallen below ₹1 trillion.
The first such dip occurred in the June quarter of 2024, when national elections temporarily disrupted project progress.
The Mazagon guided missile destroyers project in Mumbai, valued at ₹29,644 crore, was the largest completed project of the quarter, contributing over one-fifth of the total project completions during this period.
The coming quarters will be crucial in determining whether this investment slowdown is temporary or indicative of deeper structural challenges in India's capital formation landscape.
'Capex is necessary to drive growth, otherwise a slower demand will result in lower fiscal collections and become a circular problem for fiscal consolidation,' Rangan said.
Frequently Asked Questions
What was the overall trend in new project announcements in the December quarter?
New project announcements in the December quarter saw a decline of nearly 22% year-on-year and 16% sequentially, with a total value of ₹6 trillion.
Which sectors were the hardest hit by the investment slowdown?
The construction and real estate sectors were the hardest hit, with new project announcements plummeting by 65% year-on-year.
How did the manufacturing sector perform in the December quarter?
The manufacturing sector showed mixed results. While new investments rose 19% year-on-year to ₹3.3 trillion, they fell from the previous quarter’s ₹3.8 trillion.
Which sectors showed relative resilience in the December quarter?
The electricity and non-financial services sectors showed relative resilience, with quarter-over-quarter levels remaining steady despite a year-on-year decline.
What were the top five largest investments in the December quarter?
The top five largest investments included Nippon Steel's two-phase project in Andhra Pradesh’s Nakkapalli (first phase valued at ₹55,964 crore, second at ₹80,000 crore), and a Raigarh-based data center project valued at ₹30,000 crore. Collectively, they accounted for nearly 44% of the total project pipeline in Q3.
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