New investment projects worth ₹19.8 lakh crore were announced in the March 2025 quarter, the highest in at least the last six years. Though most of the announcements were made by the private sector, pledges from the government sector saw a five-fold increase in the same quarter compared to the December 2024 quarter. While a flurry of new project announcements signals confidence in the business and economic environment, past data shows that not all projects may come to fruition. Data from previous years shows that projects of considerable value were dropped, often exceeding the value of the projects completed.
The private sector announced new projects worth over ₹13.4 lakh crore in the March 2025 quarter. This is nearly twice of what was announced in the previous quarter. If only new projects in the private sector are considered, the March 2023 quarter had recorded even higher numbers. In the government sector, new project announcements hit a six-year high at ₹6.4 lakh crore in the March 2025 quarter (Chart 1).
Aditi Nayar, chief economist, ICRA Limited, said that the surge in new project announcements in the March quarter was partly aided by global investor summits across four States.
Suranjali Tandon, Associate Professor at NIPFP, said that the investments surge was probably a response to a pick-up in multiple indicators of the economy. “Perhaps there was some turning of the cycle. With the COVID years behind them, companies were sitting on [cash] reserves and this was seen as a time to put in more money in projects,” she said.
Madan Sabnavis, chief economist at the Bank of Baroda, explained that a bump in announcements is normal in the final quarter as this is the time when companies plan for the coming year and private investment normally tends to follow government capital expenditure (capex) in infrastructure-related sectors. He said, “As the elections [Lok Sabha 2024] held back the latter (government investment) in the first half of the year, there was a tendency for compensation to take place in Q4. If one looks at the sectors which have accounted for this big increase, it is power. There is a lot of focus on renewables, which is what is getting reflected here.”
A sector-wise breakdown of the new project announcements shows that projects valued at almost ₹9 lakh crore were announced for the electricity sector in the March 2025 quarter.
The Reserve Bank of India revised India’s growth projection for FY26 to 6.5% in April from 6.7% earlier. The International Monetary Fund and the World Bank also cut India’s growth projections for FY26 to a much lower rate of 6.2% and 6.3%, respectively.
Professor Tandon said, “The government is conscious of the revisions in growth forecasts. So it is possible that investments are being announced to support capex and overall growth.”
Sabnavis added, “Also some PSUs, which would also get classified under the government, had announced their plans on expansion, which added to the increase.”
As noted earlier, a surge in investment announcements does not necessarily mean that the projects will all come to fruition. Government projects worth about ₹7.6 lakh crore were dropped in FY25 compared to projects worth ₹8.5 lakh crore in the year before, whereas projects worth about ₹2.9 lakh crore were completed in FY25 which was half of what was completed the year before (Chart 2A).
In the private sector, projects worth over ₹10 lakh crore were dropped in FY25, a 10% increase compared to the previous year, while projects just under ₹3 lakh crore were completed in the same year (Chart 2B). The value of projects dropped in the post-pandemic years remains higher than in the pre-pandemic years, both in the government and private sectors.
Sabnavis explained that abandoning projects is not uncommon as projects are implemented over a 2-5 year period. New investment announcements are only intentions, he said. “Abandoning a project happens when it is not feasible for the company to go ahead with it because of clearances or budgets shows that it is no longer viable. Often, demand conditions change, which causes these projects to be shelved or dropped,” he said.
Nayar added, “Nearly 90% of the dropped projects in FY25 are on account of lack of information. A project is marked as ‘lack of information’ when there is no information available on it for a reasonably long period of time.”
Meanwhile, the gestation period of investment projects — the ratio that measures the time taken to spend ₹1 billion on projects — has increased from 16.5 months in FY19 to over 19 months in FY25. The gestation period for the private sector was higher than for government projects (Chart 3). Prof. Tandon said that this is a reflection of lower productivity and/or delays in capex projects.
Will the coming quarters sustain the investment momentum recorded in March 2025? Sabnavis said that India is less vulnerable to the tariffs imposed by the U.S. And since a negotiation is ongoing between India and U.S., the impact of the tariffs will be muted.
“Our view is that GDP growth can be affected by around 0.2%. This said, specific sectors may have to roll back on their investment in case substitute markets are not leveraged. Hence, while there can be a slowdown in some export-oriented sectors, investment will still be driven more by domestic demand conditions,” he said.
Source: Centre for Monitoring Indian Economy (CMIE)
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Published – May 16, 2025 08:00 am IST