Demand is at the heart of the Indian capex conundrum

India's industrial capital expenditure (capex) cycle is in the spotlight as policymakers and analysts search for answers to its persistent weakness.

- DHIRAJ NIM

Many explanations have been offered over the years, but evidence points to a demand problem at the heart of this capex conundrum.

Without tackling core demand problems by empowering wage earners, easing household balance-sheet stress and revitalizing exports, sustained growth in industrial capex will remain out of reach. To achieve this, addressing the fundamentals of India's economy is now imperative.

India's investment trends have been on a roller-coaster ride over the past decade. More than half a decade ago, investment as a share of gross domestic product (GDP) had begun to recover from a low in 2017, but only to be knocked back by the pandemic. While the post-pandemic rebound pushed investment up to 33.7% of GDP in 2024-25, outpacing the previous decade's average, it is still shy of the peak seen in 2011-12.

To drive a meaningful economic transformation, India needs consistent real GDP growth of 8%, anchored in manufacturing and exports. India must push its investment rate higher to 36-37% to achieve this goal.