Capital Goods, Infra Resilient Amid Industry Slowdown

The capital goods sector continues to show healthy growth in May 2025. This sector is mainly comprised of machinery and equipment meant for investment and production in the industry. After growing 14.0 per cent in April, the capital goods growth in May is 14.1 per cent.

Infrastructure and construction goods have also grown by 6.3 per cent in May 2025 — the second-best performer within the use-based classification of industries.

This is a bit baffling. While the overall trend is going down, how are capital and infrastructure goods buckling the trend?

Satyaki Roy, Associate Professor at the Institute for Studies in Industrial Development (ISID), New Delhi, said, "Industries — particularly big ones — are making profits. However, for around 10 years, a good part of these profit margins were not coming back as investments. Data supports that fact. Now, some of it is coming back in a few sectors. Initial trends suggest that capital goods are benefiting from this.”

“Statistical low base effect is also helping the capital goods sector. The growth rates of the sector in April and May 2024 were 2.8 per cent and 2.6 per cent, respectively. It will be interesting to see the growth rate in July this year, as capital goods growth in 2024 was highest in July last year, at 11.7 per cent,” said Roy.

Though not in double digits, infrastructure and construction goods are also showing healthy growth. What are the reasons?

Govt Capital Expenditure Fuels Infra Growth

It is now well-known that the central government’s capital expenditure since the time of Covid-19 has been a stabilising factor for the Indian economy. Sustained capital expenditure helped in first recovering and then stabilising the economy.

Most of these capital expenditures, both at the central and state levels, have been incurred in construction and infrastructure projects. The steady growth rate in this sector is a testimony to the proactive central government policymaking.

However, the main objective behind this consistent allocation of funds in capital expenditure was to finally encourage and attract private investment. That is not yet happening.

Roy opined, “Continuing capital expenditure at a large scale, while keeping the fiscal deficit low, will be a challenge for the government. In this light, there is a scope of scepticism as far as capital and infrastructure goods growth is concerned. Unless the private players finally pitch in, it will be difficult to continue growing in these two sectors.”

PLI Is Helping, But Not By A Lot

There is an opinion that production-linked incentive (PLI) schemes are playing a positive role in boosting machinery and equipment growth in the industry.

Some of the large, labour-intensive sectors and industrial activity facilities, like consumer electronics and non-leather footwear, benefited from the scheme. Both production and employment have gone up in these sectors. Those probably added up to the demand for more machinery and equipment.

However, Roy feels that more than the PLIs, it is the gaps in labour costs compared to other countries (simply, cheap labour) that are attracting most of these investments from abroad.

Core Sector Growth Slows Down

The core sector growth figures are more in sync with the broader trend. The early onset of monsoon hampered growth in the mining sector. As a result, the mining growth slipped into the negative zone in May 2025, from a 5.8 per cent growth rate in January 2025.

Manufacturing growth is positive, but has slowed down to 2.6 per cent in May, from 5.8 per cent in January 2025.

What is more alarming, however, is the electricity sector’s growth hitting a negative 5.8 per cent. When summer is in full swing and electricity growth comes down to that level from a high of 7.5 per cent in March 2025, it is a matter of concern.

This is an indicator of falling industrial demand. Hopefully, the latter part of the year will see an uptick in industrial activities.

Policy Implications On Sector-Specific Challenges

Of course, global economic uncertainties, amid geopolitical conflicts in different parts of the world, are playing a big role in industry operations. Frequent supply chain disruptions lead to an escalation of costs, and finally, a softening of domestic demand.

There are sector-specific challenges as well. Roy said, “Consider the example of Apple iPhone manufacturing in India. No doubt, the PLI helped, and employment has gone up. But a good part of these government incentives is flowing out of the country. That hampers the process of future investment. The government may have to fine-tune its policymaking to make it more effective.”