Capital Expenditure Growth Concerns in India

• Heavy August rains dampened industrial activity, causing the first contraction in India’s factory output since October 2022.

• Output from India’s eight core sectors declined by 0.8% in September, a 2% increase from last September.

• These sectors, constituting about 40% of industrial production, contracted for the first time in 42 months in August.

• The growth rate of these sectors has halved from 8.2% in the first half of 2024-25 to 4.2% in the first half of 2024-25, significantly under the 2023-24 growth pace of 7.6%.

• The Index of Core Industries (absolute production levels) has consistently declined since May, slipping for the fourth successive month in September.

• This slowdown in industrial activity is causing concern about weakening urban consumption of durables and daily use items.

• Capital spending on public infrastructure projects by the Centre has shrunk 15% this year, possibly explaining weak output trends for core sectors like steel.

• The Centre’s capex goal for the year acknowledges this, but it must ramp up public infra spends to meet this targe