The latest data on capital expenditure (capex) in India presents a paradox of promising numbers hiding underlying fragility. While new project announcements saw a healthy sequential rise in the October-December quarter (Q3) of the 2025-26 financial year, a closer look reveals a recovery that is narrow, selective, and still missing the robust government spending needed for a broad-based revival.
The Headline Growth and Its Composition
According to provisional data from the Centre for Monitoring Indian Economy (CMIE), new projects worth ₹10 trillion were announced in Q3 of FY26. This marks a nearly 16% increase from the ₹8.6 trillion announced in the previous quarter (Q2) and shows a steady quarterly progression within the fiscal year, starting from ₹8 trillion in Q1.
However, the year-on-year picture is less rosy. The ₹10 trillion figure is actually lower than the ₹10.5 trillion announced in the same quarter a year ago (Q3 FY25), marking the second consecutive quarter of annual contraction. The driving force behind the sequential uptick was overwhelmingly the private sector, which contributed a staggering ₹9.2 trillion, or 92%, of the new commitments.
This surge in private intent stands in stark contrast to the performance of public capex. Government capital expenditure failed to grow between Q2 and Q3, after already contracting from Q1 to Q2. This sustained weakness in public spending continues to act as a drag on the overall investment climate.
A Lopsided Recovery: Sectoral Concentration
The recovery is not widespread across sectors, highlighting its narrow base. Investment proposals in the critical manufacturing segment fell sharply to ₹4.1 trillion in Q3 FY26 from ₹6 trillion in Q2 and ₹5.2 trillion a year ago. This decline persists despite the ongoing support from production-linked incentive (PLI) schemes, signaling a distinct loss of momentum for the sector.
The sequential growth was salvaged by just two sectors: electricity and services. New investment in electricity rebounded powerfully to ₹2.4 trillion from a modest ₹0.9 trillion in Q2. Similarly, capex intentions in the services sector (excluding financials) surged to ₹3.2 trillion from ₹1.2 trillion. Construction and real estate remained subdued at ₹0.3 trillion.
This concentration is further emphasized by mega-projects. The top five projects announced in the quarter accounted for almost 35% of the total investment value. These were led by a near ₹1-trillion data centre project in Visakhapatnam, a ₹0.7-trillion AI data centre and GCC campus in Telangana, and large renewable power projects.
Execution Improves, But Broader Revival Elusive
There is a silver lining in project execution. The value of projects completed in the first nine months of FY26 rose to ₹5.8 trillion from ₹5.5 trillion in the same period last year, touching an at least seven-year high. This suggests the current investment cycle is focused on completing ongoing projects.
Economists point to strategic priorities driving the concentrated growth. Madan Sabnavis, chief economist at Bank of Baroda, noted, "AI is a phenomenon that has caught on in a big way across the world and in India. It is also one of the high priorities of the government." He added that the trend of investment in AI and power infrastructure is likely to persist.
In conclusion, the animal spirits in the Indian economy are stirring, but selectively. The capex story of Q3 FY26 is one of a private sector-led, sector-specific rebound focused on power and technology-enabled services. With manufacturing struggling and government capex subdued, the signs of a broad-based, economy-wide capital expenditure revival remain elusive for now.
