Private sector investment growth subdued in FY25 but slowdown temporary: Economic Survey

However, striking an optimistic note, the survey added that this slowdown in investment activity is likely temporary.

Private sector investment growth may have remained subdued in FY25, so far, on account of the general elections, global uncertainties and overcapacities, the Economic Survey, tabled in Parliament on January 31, has said.

“The moderation in real GDP growth can be traced to a softening of growth in Gross Fixed Capital Formation from 10.1 percent in H1 FY24 to 6.4 percent in H1 FY25.

“Q1 FY25 witnessed a slowdown in capital expenditure across different levels of government on account of the conduct of the general elections. Private sector investment growth may have remained subdued thus far in FY25 on account of the domestic political timetable, global uncertainties and overcapacities,” the survey said.

Striking an optimistic note, the survey, the government’s report card of the state of the economy, added that the slowdown in investment activity is likely temporary.

“Green shoots in capital formation are visible. Union government capex is up 8.2 percent in July – November 2024 and is expected to pick up further pace. Early results of the RBI’s Order Books, Inventory, and Capacity Utilisation Survey (OBICUS) show that the seasonally adjusted capacity utilisation (CU) in manufacturing firms was 74.7 percent in Q2 FY25, above the long term average of 73.8 percent,” the survey said.

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The document said a private sector report’s analysis of a sample of capital goods companies indicates that the order books of these companies have registered a sharp increase of 23.6 percent in FY24 as against a compounded annual growth rate (CAGR) of 4.5 percent in the preceding four years.

“Moreover, in H1 FY25, there has been a growth of 10.3 percent compared to the end of FY24,” the survey said.

The Reserve Bank of India’s report on private investments showed that investment intentions increased to Rs 2.45 lakh crore for FY25 as compared to Rs 1.6 lakh crore for FY24.

“Along with fresh investment, some of the existing intentions would spill over and be implemented in FY26,” it noted.

Investment activity is expected to pick up, supported by higher public capex and improving business expectations. “Capacity utilisation in manufacturing remains above the long-term average, and private sector order books have shown steady growth, alongside a rise in investment intentions,” it said.

However, these gains could be tempered by the global excess capacities in sectors such as steel, leading to aggressive trade policies in search of demand, it added.