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Private Capex Plunge Threatens India's Growth Momentum
22 Aug
Summary
- Private capex for FY26 significantly lower than FY25
- Global trade issues, including US tariffs, pose further risks
- Weak private investment a major concern, government spending alone insufficient
According to a recent report by the State Bank of India (SBI), India's private capital expenditure (capex) for the upcoming fiscal year FY26 is expected to be significantly lower than the numbers seen in FY25. This decline in private investment is a major concern, as the economy has been heavily reliant on government spending to drive growth in recent years.
The report highlights that while government capital expenditure has provided a boost to economic activity, the muted presence of private investment is acting as a constraint, limiting the multiplier effect of these government-led initiatives. The peak elasticity of government capex to GDP stands at 1.17, suggesting that public spending has been able to lift the economy to a higher trend. However, the report emphasizes that the next phase of growth can only be sustained through stronger private sector participation.
Adding to the concerns, the report notes that the intended private capex for FY26 also faces risks of further weakening due to global trade headwinds, including the impact of US tariffs. This could further exacerbate the already declining trend in private investment, which has stagnated at around Rs 4.9-6.6 lakh crore in recent years.
The report urges private investors to "hold the baton now" and play a more active role in driving the country's economic momentum and unlocking greater growth potential. With the government's capital expenditure already doing the heavy lifting, the report emphasizes that the private sector must step up to complement and crowd in public spending for the economy to reach its full potential.
