Manufacturing dominates new investment pipeline as capex revival gains steam in Q2

By: Team India Tracker

Global manufacturers are reworking supply chains to cut reliance on China, with India emerging as a key alternative. Apple suppliers, renewable firms, and automakers have ramped up local investments.

The manufacturing sector is having a moment. In the three months to September, factories accounted for a record 73.2 per cent of all new investment projects — the highest share since tracking began in 2010, according to the Centre for Monitoring Indian Economy (CMIE).

More significantly, the surge signals a decisive shift in India’s growth engine. Of the Rs 5.2 lakh crore ($62 billion) worth of new projects announced during the quarter, Rs 3.8 lakh crore came from manufacturing—an unprecedented share, even if the total investment trails the Rs 8.3 lakh crore peak of March 2024.

Factories lead the charge

For much of the past decade, manufacturing lagged behind services, power, and construction, accounting for barely 35–40 per cent of new projects. That balance has flipped since FY23, as companies, buoyed by stronger balance sheets and steady demand, begin to invest again.

The momentum points to a broad-based revival in private capex. Companies are now expanding capacity rather than merely reducing debt—a clear sign of confidence returning, say economists.

The shift also reflects a mix of domestic policy incentives and global realignments. The Modi government’s Production-Linked Incentive (PLI) scheme, lower corporate tax rates, and ongoing efforts to simplify land and labour laws have given the sector fresh impetus.

Meanwhile, global manufacturers are reconfiguring supply chains to reduce dependence on China. India, with its large workforce, improving infrastructure, and growing consumer base, has emerged as a credible alternative. Apple suppliers, renewable energy firms, and auto manufacturers have all stepped up local commitments in recent months.

Power fades, services plateau

While factories buzz, other sectors are slowing. The power industry—once a pillar of India’s investment cycle—has sharply lost ground. Its share of new project announcements fell to just 4.3 per cent in the September quarter, down from 22.3 per cent a year earlier, amid delays in renewable projects and weak sentiment in thermal power.

Services, excluding finance, held steady at 18 per cent, led by logistics, telecom, and hospitality. Construction dipped to 4.6 per cent after several strong quarters, and mining remains subdued amid weak global commodity trends.

This rotation highlights a maturing economy. A manufacturing-led investment cycle could diversify the country’s growth drivers, reducing dependence on consumption and generating higher-value employment.

Policy tailwinds

New investment flows have been buoyed by the government’s aggressive industrial policy push, which seeks to transform India into a global manufacturing hub across electronics, semiconductors, green energy, and defence. The PLI scheme, lower corporate taxes, and efforts to streamline land and labour regulations have begun to pay off, particularly in sunrise sectors like electric vehicles, mobile devices, and chemicals.

India’s improving ease of doing business, combined with a post-pandemic rebound in demand, has made it an attractive manufacturing base. Industrial states such as Gujarat, Tamil Nadu, and Maharashtra are seeing strong interest in electronics, EVs, semiconductors, and defence equipment.

Implementation challenge

The next challenge is execution. India has long struggled to convert project announcements into actual investments. Implementation ratios have improved but remain below pre-pandemic levels, constrained by regulatory bottlenecks and financing delays at the state level.

Analysts warn that sustaining this manufacturing momentum will require faster project clearances, better logistics, and stronger coordination between central and state authorities.

Still, early signs are encouraging. Capacity utilisation in manufacturing is above 75 per cent, and credit growth to industry is rising—evidence that investment plans are translating into action.

A turning point

If sustained, this shift marks a turning point for India’s $3.9 trillion economy. For decades, growth relied on consumption and services. A manufacturing-led capex cycle could build resilience, strengthen exports, and create better-paying jobs.

Factories tend to have strong multiplier effects — spurring demand for machinery, construction materials, and logistics — while boosting productivity and exports.

With manufacturing now accounting for nearly three-fourths of all new investment projects, India’s industrial ambitions are finally moving from aspiration to execution.