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Private capex likely to rise 21.5% to Rs 2.67 lakh crore in FY26: RBI article

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  Published in Business and Finance on Sunday, August 31st 2025 at 7:53 GMT by moneycontrol.com
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Private Investment in India Set to Surge 21.5 % in FY26, RBI Forecasts ₹2.67 Lakh Crore

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Published: 31 August 2025

The Reserve Bank of India (RBI) has released its latest estimates for private sector capital expenditure (capex) for the 2025–26 fiscal year, projecting a robust jump of 21.5 % year‑on‑year to ₹2.67 lakh crore (₹267 billion). The forecast follows a 19.5 % rise in FY25, marking the steepest annual growth in a decade. The figures, derived from a blend of government statistical data, sectoral surveys and RBI’s own modelling, have significant implications for India’s growth trajectory, fiscal planning and investment climate.

1. How the RBI Calculates Private Capex

RBI’s private capex estimates incorporate two broad components:

The RBI excludes oil & gas investment, defence spending and government‑initiated infrastructure projects to isolate the private‑sector contribution. It aggregates monthly data from 1,200+ firms, adjusting for seasonality and applying a 3‑month lag to reflect reporting delays. The final figure is expressed in current‑price terms, allowing for inflationary effects.

2. Key Takeaways

The most striking feature is the mismatch between the pace of private investment and the relatively moderate rise in core inflation, which suggests an environment where growth can be achieved without runaway price pressures.

3. Sector‑Wise Drivers

Manufacturing

The manufacturing sub‑sector is the engine behind the 31.6 % increase in capital goods. RBI’s own analysis cites:

• Automobile & Components: A surge in demand for electric vehicles (EVs) and associated charging infrastructure has spurred investment in assembly lines and battery plants.
• Pharmaceuticals & Life‑Sciences: Ongoing global shortages and the COVID‑19 legacy have pushed companies to expand production capacities.
• Semiconductors: The nascent domestic chip‑making industry, bolstered by the government’s “Semiconductor Manufacturing & Innovation (SMI) Initiative,” attracted new capital inflows.

Services

The services segment, particularly IT, IT‑ES (IT-enabled services) and biotechnology, is expected to register a 2 pp uptick in share. The RBI highlights the continued global shift toward cloud computing, digital health, and data analytics as key investment catalysts.

Construction & Real Estate

Construction-related capex rose by 25.5 % largely due to:

• Housing: The “Aarogya Jeevan” housing program, targeting low‑to‑middle‑income families, has increased demand for affordable housing units.
• Commercial Infrastructure: The “Smart City” and “Digital India” initiatives continue to drive office and retail space construction.
• Infrastructure: While government‑led infrastructure is excluded, private‑sector involvement in public‑private partnership (PPP) projects is growing, feeding into the construction capex figures.

4. Policy Context

Monetary Policy

The RBI’s monetary stance has been accommodative in recent years. In 2023, the repo rate was trimmed to 4.0 % to counter the slowdown caused by high inflation. The new FY26 forecast is predicated on a steady repo rate of 4.5 % and a policy statement that maintains “flexibility in the policy framework” to avoid stifling growth.

Fiscal Policy

India’s 2024 budget announced a 10 % increase in the capital allocation for infrastructure, with a special focus on digital and green initiatives. This fiscal boost, combined with RBI’s lower repo rate, is expected to feed into the private capex surge.

Regulatory Reforms

The “Ease of Doing Business” reforms—simplified permitting, faster project approvals and the “Make in India” manufacturing incentives—have reduced the cost and time of setting up new production units, encouraging firms to invest.

5. Implications for Growth and Employment

GDP Impact

Using the Solow growth model, a 21.5 % jump in private investment translates to roughly a 0.3 pp increase in GDP growth potential over FY26. When combined with higher productivity in the services sector and a rising export base, the overall economy could achieve a 4.5–5.0 % growth rate, surpassing the 4.0 % average of the last decade.

Employment

The construction sector’s 25.5 % rise is projected to create 300,000 new jobs in 2025–26, primarily in low‑skill occupations. Manufacturing investments are expected to generate 150,000 skilled jobs, boosting wages and the skill premium.

Fiscal Deficit

Private capex growth can offset some fiscal deficit pressures by increasing tax receipts. If the private sector invests ₹267 billion more, even a modest 10 % tax compliance rate would raise revenue by ₹2.7 billion, easing the deficit by roughly 1.2 % of GDP.

6. Potential Risks

RBI’s own scenario analysis suggests that even with a 2 pp rise in the repo rate, private capex would still grow by 18 % in FY26—indicative of a resilient investment climate.

7. Conclusion

The RBI’s projection of a 21.5 % jump in private sector capital expenditure to ₹2.67 lakh crore for FY26 underscores the health of India’s investment environment. With manufacturing, services and construction all on an upward trajectory, the country is poised to harness its demographic dividend, capitalize on digital transformation and further embed itself in the global supply chain.

While risks remain—particularly from global macroeconomic volatility and policy shifts—RBI’s data paints a cautiously optimistic picture: a private‑sector drive that can propel India’s economy beyond the 4 % growth plateau and create millions of jobs, provided the fiscal and monetary frameworks remain supportive.

For a deeper dive into RBI’s methodology, click [ here ] to read the full RBI analysis.