A significant revival in capital expenditure (capex) is on the horizon for India, with the defence and capital goods sectors poised to be the primary engines of growth. This optimistic outlook comes from a detailed analysis by Motilal Oswal Financial Services, which highlights a shifting investment landscape as the government's spending dominance begins to recede.
Private Sector Steps Up as Public Capex Plateaus
The report indicates a pivotal transition in India's investment cycle. For nearly a decade, public sector spending has been the cornerstone of capital formation. However, this trend is expected to moderate. The central government's capex growth, which surged at a compound annual growth rate (CAGR) of 30.4% over the past four years, is projected to slow to a modest 3-5% in the current fiscal year. This deceleration creates space for the private sector to take the lead.
Motilal Oswal's analysis suggests that corporate India is ready to fill this gap. After a prolonged period of deleveraging, private sector balance sheets are now healthier, paving the way for a new investment cycle. The focus is shifting from government-led infrastructure projects to industry-specific expansions, with defence and capital goods at the forefront.
Defence and Capital Goods: The New Powerhouses
The defence sector is undergoing a monumental transformation, fueled by the government's 'Atmanirbhar Bharat' (Self-Reliant India) initiative and a clear policy push for indigenisation. The report underscores that defence is likely to be the fastest-growing segment within the capital goods space. This growth is driven by massive orders from the Indian Armed Forces, a strong pipeline of exports, and a concerted move to reduce dependency on imports.
Similarly, the broader capital goods industry is experiencing a robust uptick. Order inflows for major capital goods companies have grown by a remarkable 15-20% over the last two to three years. This surge is not limited to a few players but is widespread across the sector, indicating a broad-based recovery. The growth is attributed to rising demand from various end markets, including renewables, railways, hydrocarbons, and metals.
Broader Capex Trends and Sectoral Performance
Beyond the star performers, the report paints a picture of selective but solid growth across other industries. Sectors like automobiles, chemicals, and textiles are also witnessing an increase in capital expenditure as companies expand capacity to meet rising domestic and international demand. The hospitality and real estate sectors are contributing through new construction and development projects.
However, the analysis also notes a note of caution. Investment in traditional sectors such as power and telecommunications remains subdued, reflecting a shift in economic priorities. The overall private corporate capex, which saw a contraction in the previous fiscal year, is now expected to post a healthy double-digit growth, signalling a firm turnaround.
Implications for India's Economic Trajectory
This anticipated capex revival is crucial for sustaining India's high economic growth rate. A vibrant private investment cycle creates jobs, boosts productivity, and fosters innovation. The rise of defence manufacturing has additional strategic benefits, enhancing national security and positioning India as a global exporter of defence equipment.
The Motilal Oswal report concludes that while the nature of investment is changing, its momentum is strengthening. The baton is being passed from the public to the private sector, with defence and capital goods companies leading the charge. This transition marks a mature phase in India's economic development, where policy support and corporate confidence converge to build a more self-reliant and industrially robust economy.
