New govt infrastructure projects down by over 20% in December quarter

The private sector has pulled back on spending for new factories and other long-term assets, while government infrastructure projects, such as new roads, have also slowed.

 

The total value of new project announcements in the December 2024 quarter declined 22 per cent year-on-year to Rs 6 trillion, according to data from tracker Centre for Monitoring Indian Economy (CMIE). Meanwhile, the value of completed projects plummeted 52 per cent year-on-year to less than Rs 1 trillion. 

Both new and completed project values as of December 2024 remain below pre-pandemic levels seen in 2019. 

In recent years, government spending and selective large-scale private investments — notably in the aviation sector — had driven capital expenditure.   

However, the December 2024 quarter saw a sharper fall in government capital expenditure (capex) compared to the private sector. 

Private sector project announcements dropped to less than Rs 5 trillion from nearly Rs 6 trillion a year earlier, while government announcements tumbled to around Rs 1.1 trillion from Rs 1.8 trillion in December 2023. 

Fiscal tightening has weighed on government announcements and the spending is expected to undershoot budgeted levels by Rs 1 trillion to Rs 1.5 trillion, according to an earlier Business Standard report. The year-on-year percentage decline in new government project announcements is double that of the private sector. 

Yet, there are bright spots. The manufacturing sector showed resilience, posting nearly 20 per cent increase in new project announcements. This reflects the government’s push for manufacturing through initiatives like the production-linked incentive (PLI) schemes. Manufacturing accounted for the largest share of spending announced in the December 2024 quarter. However, other sectors, including electricity and construction, saw marked declines. 

Capacity utilisation remains a constraint on new investment. The Reserve Bank of India’s Order Books, Inventories, and Capacity Utilisation Survey (OBICUS) indicated a slight rise in seasonally adjusted capacity utilisation to 75.8 per cent as of June (according to data released with a lag), leaving nearly a quarter of production capacity idle. More recent corporate commentary, including from consumer goods firms, has flagged a demand slowdown. 

Capital goods companies have been cautious about the new capex outlook, according to management commentary during quarterly results. “Private sector capex is happening, but mainly in the new age technology: Semiconductors, batteries, solar photovoltaic, e-vehicles, and so on. On traditional verticals, it is slow. Some are doing better than others, but private sector capex has not really picked up yet to the extent that we would have liked it to,” said Sunil Mathur, managing director and chief executive officer, Siemens, during an earnings call on December 20. 

Opportunities persist in select sectors. Real estate may benefit from rising demand in health care and data centres, noted P Ramakrishnan, head of investor relations at Larsen & Toubro, during the company’s October 30 earnings call. Minerals and metals also show promise, but state-level capex faces headwinds. 

“State-level prospects have come down relatively… We do see some states looking to convert part of state revenues into subsidies and all of that stuff. To some extent, there is some drop,” he added.