India faces prolonged slowdown in private sector capital expenditure

Source: The post India faces prolonged slowdown in private sector capital expenditure has been created, based on the article “We have a hazy forecast of a private capex slump” published in “Live Mint” on 1 May 2025. India faces prolonged slowdown in private sector capital expenditure.

UPSC Syllabus Topic: GS Paper3- Economy-  Government Budgeting.

Context: India’s long wait for a surge in private-sector capital expenditure may continue. A new survey by the National Statistical Office signals a slowdown in investment intent for 2025–26, offering a clearer view of business sentiment and challenges.

For detailed information on India aims for growth with increased capital expenditure read this article here

Private Investment Trends and Sectoral Variation

1. Fluctuating Investment Patterns: Actual private capex rose from ₹4 trillion in 2021–22 to ₹5.7 trillion in 2022–23, then declined to ₹4.2 trillion in 2023–24. These shifts highlight the volatility in private investment.
2. Expected Decline in Capex Plans: For 2025–26, the survey projects intended capital expenditure at ₹4.9 trillion—about 25% lower than last year’s plans. The fall reflects cautious planning after a strong 2024–25.
3. Sector-Wise Divergence: Not all sectors foresee a decline. Manufacturers intend to raise investments to ₹2.1 trillion, 40% higher than last year. The construction sector also shows rising intent, in contrast to the broader slowdown.

Survey Design and Methodology

1. Targeting Large Registered Companies: The survey focused on active firms registered with the Ministry of Corporate Affairs. Manufacturers needed a turnover of ₹400 crore, trading firms ₹300 crore, and others ₹100 crore.
2. Stratified and Balanced Sampling: Enterprises were grouped into 17 business strata. Small strata (100 firms or fewer) were fully included. In larger strata, selection considered fixed asset size and random sampling to balance representation.
3. Final Sample Selection: From 16,025 eligible firms, 5,380 were asked to respond. Large corporations were likely included due to fewer competitors in their fields.

Data Limitations and Interpretation Cautions

1. Low Response Rate and Bias Risk: Only 58.3% of selected firms responded, and just over 40% disclosed future capex plans. This introduces self-selection bias, as results reflect only those willing to share plans.
2. Indicative, Not Absolute: The statistics ministry called the findings “indicative.” They should be used to detect broad trends, not as definitive data.

Implications for Policy and Growth

1. Signals of Business Uncertainty: The finance ministry’s March bulletin warned that uncertainty may cause businesses to delay capital formation. The survey aligns with this view.
2. Value in Early Trend Detection: Despite limitations, the survey helps track sentiment and offers early signals for policymakers to address investment-related challenges.

Question for practice:

Examine the key trends and implications of the National Statistical Office’s survey on private-sector capital expenditure in India for 2025–26.