India's Private Capex Expected to Jump 54% to Rs 2.45 Lakh Cr in FY25: RBI Paper

Private capital expenditure is projected to surge by 54% to Rs 2.45 lakh crore in FY25, up from Rs 1.59 lakh crore in FY24, according to a paper by Reserve Bank of India (RBI) staffers. This estimate is based on the analysis of investment intentions of private corporates, focusing on projects sanctioned by banks or financial institutions during FY24.

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The paper, authored by Kamal Gupta, Rajesh Kavediya, and others, highlights that the phasing profile of pipeline project finance indicates a significant increase in envisaged capex to Rs 2.45 lakh crore in 2024-25 from Rs 1.59 lakh crore in 2023-24. However, it is important to note that this paper does not represent the central bank's views.

Investment Intentions and Project Analysis

The study concentrated on projects costing over Rs 10 crore and predominantly owned by private corporates. It noted that the estimates might differ from actual private corporate fixed investment data due to changes in planned amounts, timing, funding sources, or project shelving.

In FY24, banks and financial institutions sanctioned assistance for 944 projects with a record high total cost of Rs 3,90,978 crore. This is a significant increase compared to the 547 projects sanctioned in FY23 with a total cost of Rs 2,66,546 crore.

Investment plans for 1,505 projects were made during FY24, with record investment intentions amounting to Rs 5.65 lakh crore. This compares to 982 projects in FY23 with investment intentions of Rs 3.51 lakh crore. The intentions in FY24 included 11 mega projects costing over Rs 5,000 crore each and 77 large ones costing over Rs 1,000 crore each.

Sectoral Distribution and Regional Focus

The infrastructure sector continued to attract the major share of envisaged capital investment, led by Roads & Bridges and Power sectors. This reflects the government's push towards infrastructure development.

The top five states—Gujarat, Maharashtra, Karnataka, Andhra Pradesh, and Uttar Pradesh—accounted for about 55% of the total cost of projects sanctioned during FY24.

Rising domestic demand, higher capacity utilisation, improved profitability, sustained credit demands, business optimism, and the government's infrastructure development thrust are positive indicators for private capex growth.

Funding Sources and Project Types

A total of 438 companies raised Rs 1.68 lakh crore through external commercial borrowing for capex purposes. Additionally, 123 entities raised Rs 6,310 crore through domestic equity issuances under the initial public offering (IPO) route for funding their capex needs.

The paper also mentioned that private sector investments are crucial drivers of India's long-term growth. It highlighted that despite previous years' trends where government or state-run entities led investments while the private sector lagged behind.

The study found that 89% of proposals were greenfield or new projects. The sustainability of this upbeat investment cycle needs close monitoring as per the paper's analysis.

This comprehensive analysis underscores the significant role of private sector investments in driving India's economic growth and highlights the importance of continued support for infrastructure development initiatives.