India’s Economy Shows Positive Signs of Growth and Investment Revival
By Manoj Kumar and Shubham Batra
NEW DELHI, Sept 1 (Reuters) – India’s economy is beginning to show promising signs of a much-anticipated revival in private investment, helping to diversify its growth sources and enhance resilience against global economic challenges.
In the April-June quarter, India’s economy grew by 7.8%, surpassing economists’ predictions for the twelfth straight quarter. This unexpected growth comes at a time when the country is still grappling with high commodity prices, a fluctuating currency, foreign investment withdrawals, and a heavy reliance on imported oil.
Prime Minister Narendra Modi expressed his optimism on social media, stating, “Doomsayers were doomed and India bloomed…yet again!” His government is under pressure to improve job opportunities, especially for young people.
The most notable aspect of this GDP growth is that it is no longer predominantly fueled by consumer spending and government expenditure. Years of investment in infrastructure are now attracting private investments, which rose by 11.9% in the same quarter.
However, despite these positive developments, job growth remains sluggish. As sectors like automation and data centers flourish, the investment in these areas creates fewer jobs compared to prior growth phases.
Citi analysts noted this investment surge is the strongest since late 2018, reinforcing their belief in a positive trend for corporate capital expenditure. According to the National Statistics Office, the gross fixed capital formation, which reflects investment in the economy, increased to 34.3% this quarter from 31.4% a year ago.
Saurabh Sanyal, Secretary-General at ASSOCHAM, highlighted that investments in railways, artificial intelligence, and semiconductors have played a crucial role in supporting economic progress. Factory utilization has also been on the rise, reportedly nearing 77% in the earlier quarter, indicating growing private-sector investments in industries like automobiles, renewable energy, and defense.
Over the last year, capital investment, primarily from the private sector, has surged by more than 5 trillion rupees (approximately $52.7 billion) during this quarter.
A Shift from Public to Private Investment
For a significant part of the past two years, investment growth heavily relied on government spending. However, with Finance Minister Nirmala Sitharaman’s proposal of 12.2 trillion rupees ($133 billion) for infrastructure in the current fiscal year—more than double the amount from five years prior—there is a trend of public spending paving the way for private investments.
This shift is evident in the increase of bank credit, which is growing at an impressive rate of over 19%, the fastest in a decade, with credit to industry rising by 20%, according to the Reserve Bank of India.
Amitabh Chaudhry, CEO of Axis Bank, noted that demand is primarily driven by large corporations and non-bank lenders, indicating a broad-based growth. Even when excluding specific segments, there remains a strong demand for credit.
The revival of investments is also buoyed by resilient consumer spending, which rose by 7.1% in the April-June period.
Future Facing Technology and Manufacturing
While traditional infrastructure spending is solid, India is increasingly focusing on investments in data centers, semiconductors, and advanced manufacturing. Major global technology companies like Google and Amazon have pledged to invest over $40 billion in Indian data centers over the next five years.
Recent advancements in aerospace and defense highlight these ambitions, with Indian firms unveiling indigenous technologies for rockets and aircraft engines.
Data from Citi indicates that listed Indian companies increased their capital expenditure by 11% in the financial year ending March 2026, up from 8% previously. The bank predicts the investment recovery will continue into fiscal 2027, backed by favorable conditions such as strong demand, ample funding, lower interest rates, and healthy financial statements.
Rajeev Juneja, president of an industry body, stated, “There are several indicators suggesting that the structural component of growth is gaining strength,” emphasizing the improved health of corporate balance sheets compared to the investment slowdown of the past decade.
However, risks remain on the horizon. High oil prices, geopolitical uncertainties, and a weaker rupee could increase input costs, potentially fueling inflation and keeping interest rates elevated for an extended period.
HSBC economists cautioned that while GDP growth has been strong so far, a slowdown might be expected due to weakened public-sector capital expenditure, poor rainfall, the diminishing impact of tax cuts, and more challenging comparisons from the previous year.
(Reporting by Manoj Kumar and Shubham Batra in New Delhi; Editing by Ira Dugal and Shri Navaratnam)
