Private large-scale corporations increased their capital expenditure, accounting for 2.3% of the country's domestic product (GDP).
Chennai: In a positive development for the Indian economy, large private sector companies have significantly boosted their capital expenditure (capex) in real terms, growing to 2.3% of the Gross Domestic Product (GDP) in the financial year (FY) 2025. This marks a notable increase from a three-year low of 1.6% in FY24.
The uptick in capex reflects a turning point in the proposed investments by large private companies, as their contributions had dropped to 1.6% of the GDP in FY24. In FY22, they accounted for 2% of the GDP, and 2.4% in FY23, according to India Ratings.
Large companies' share in the overall private sector capex has diminished in past years. Their capex represented 18.9% of the total private sector capex in FY23, but this figure dropped to 13.9% in FY24, with an estimated further decrease to 7% in FY25. This suggests increased capital investments by other private sector firms in the past two years.
Most of the capex during FY25 was allocated for the purchase of new assets, with over half of the expenditure going towards new machinery and equipment, signaling modernization and capacity expansion. Capital work-in-progress accounted for 22%, dwellings and buildings accounted for 9.7%, and intellectual property products accounted for 5.8%.
However, only 2.2% and 0.3% of the expenditure were spent on computer software and databases and research and development, respectively. This expenditure proportion indicates a low innovation intensity at a broader corporate level in India, which is somewhat concerning given the current pace of technological advancements such as Artificial Intelligence (AI) and cloud computing.
Income generation and upgradation remained the primary focus of nearly 80% of the enterprises in FY25, while energy transition accounted for just 1.4%. Only 4.4% of the manufacturing firms were planning to invest in energy conservation, the highest among all sectors.
Despite the promising signs for FY25, there is a projected decline in capex for FY26, possibly due to a cautious approach and uncertainty. The tariff tantrum may weigh down on total private sector investments, according to India Ratings.
Investing in new machinery and equipment has been a significant focus for large private companies, as over half of their capital expenditure (capex) in FY25 was allocated for this purpose, signaling modernization and capacity expansion. However, spending on research and development (R&D) and computer software and databases remains low, indicating a relatively low innovation intensity at a corporate level in India, which may pose concerns given the current pace of technological advancements such as Artificial Intelligence (AI) and cloud computing.
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