India’s private sector investment plans have taken a noticeable hit as domestic demand weakens due to inflation and high input costs, and although they briefly recovered in the second quarter of 2024 (Q2), they are expected to decline in October 2024. It decreased by 1.4% in the December period (3rd quarter). 2024-25.
However, the government’s capital expenditure plans recorded sharp growth, with overall new investment in the economy in the third quarter rising 9.9% to Rs 11.46 lakh crore from Rs 10.43 lakh crore recorded in the second quarter. The increase was driven by a 34.6% jump in new investment by state governments compared to second-quarter levels, nearly triple the 11.8% increase in new spending announced by the federal government.
New investments by foreign companies increased by 44.2% quarter-on-quarter to Rs 1.02 billion, albeit at a low base. This surge is mainly due to a single Rs 70,000-crore steel project announced by ArcelorMittal Japan.
Rising input costs
However, domestic investors reduced their new investment plans by 1.4% from the second quarter to around Rs 6.11 billion in the third quarter. Additionally, total private sector projects decreased significantly from 1,253 in the second quarter to 1,061 in the third quarter. The share of retail investors in new investment projects rose to 62.2% in the third quarter from 66.2% in the second quarter, according to data from Projects Today, which has tracked new and ongoing investment projects in the country since 2000. It declined to .
“The slowdown in domestic private investment in Q3 FY25 reflects India’s concerns over rising input costs due to high inflation and ongoing geopolitical uncertainty,” said Project Today Director and Chief Executive Officer CEO Shashikant Hegde told The Hindu. He added that weaker corporate performance and weaker urban demand in the second quarter may also have dampened investor appetite. India’s gross domestic product (GDP) growth slowed to 5.4% in the second quarter, the lowest in seven quarters.
While advocating for continued debate, Hegde said that “favourable economic conditions, such as easing inflation and implementing policy interventions to boost consumption and growth, are expected to stimulate private investment activity in 2025. The outlook for the period from 2020 to 2026 remains optimistic. Promoting capital investment in core sectors by the government.
new power project
New investments by states were around Rs 2,280 crore, higher than the Rs 2,050 crore announced by the Center in the third quarter and accounted for almost 20 per cent of the total new expenditure. In the second quarter, the value of new projects announced by the Center was higher than in the US.
Mining, irrigation, pharmaceuticals, employment-intensive construction and the automotive sector saw new spending fall sharply compared to the second quarter. While infrastructure investment increased by only 0.8% to Rs 4.25 billion, new power projects increased significantly by 21.9% to Rs 4.5 billion, accounting for the largest share of new investments up to the third quarter at 39.3%.
“These investments, particularly in transport and social infrastructure, not only lay the foundations for long-term growth, but also complement private sector efforts by improving the business environment and reducing operational bottlenecks,” he said. “This is essential to maintaining overall economic momentum.” Hegde explained.
Rajasthan pleads for highest investment
There was a significant turnover among the states that accounted for the top share of new investment projects. Rajasthan emerged as an unexpected leader, with new project spending in the state by public and private investors increasing to around Rs 2,250 crore in the third quarter, almost three times higher than in the second quarter.
The top two states in the second quarter, Maharashtra and Gujarat, fell one place as a result, while Tamil Nadu, which was ranked third in terms of investment plans in the second quarter, fell just outside the top 10. New projects in Tamil Nadu in the third quarter amounted to just Rs 18,066 crore, 60.8% lower than the second quarter’s total of Rs 46,119 crore.
Haryana, which has 80 investment projects worth around Rs 25,800 crore, entered the list of top 10 states, replacing Jammu and Kashmir, which was ranked 10th in the second quarter.
There was a decline in announcements of mega projects worth at least Rs 1,000 crore in the third quarter, reflecting the overall slowdown in the private sector. In the third quarter of 2024-25, 228 mega projects worth a total of over Rs 7.69 billion were announced, while in the second quarter, 232 projects worth Rs 8.4 billion were announced. This suggests a decline in private investment, Project Today said.
issued – January 19, 2025 9:41pm IST
