“We expect incremental capex of about US$1tn, as overall investments increase 1.8x over the next five years, to US$2.2tn. This should lift the investment rate to roughly 37.5% by F2030, from its current rate of 34.6% of GDP,” the report noted.
Also Read: India’s defence capex seen rising to Rs 2.8 trillion by FY30: Kotak
The report said the central government is expected to maintain its budgeted capital expenditure target of Rs 12.2 trillion, or 3.2 per cent of GDP, with continued focus on infrastructure and defence. It also expects private capex to accelerate on the back of healthy domestic demand, policy support and a gradual recovery in exports.
Morgan Stanley said India is at the beginning of a sustained capex upcycle, supported by four key drivers — energy security and energy transition, defence, manufacturing supply chains, including electronics and semiconductors, data centres and infrastructure development. According to the report, these multiple investment drivers are expected to make the capex cycle more durable and resilient over the medium term.
The report noted that recent high-frequency economic indicators for June remained resilient despite global uncertainty, while easing commodity prices and improving supply chains are likely to support both domestic and external demand. It added that new and ongoing investment projects improved sequentially during the June quarter, with manufacturing, electricity and IT services recording stronger growth.
According to the report, central government capital expenditure reached Rs 2.5 trillion during April-May FY27, accounting for about 20.5 per cent of the annual budget target and marking a 13.4 per cent year-on-year increase. About 53.4 per cent of this spending was directed towards roads and railways. State government capex, however, remained relatively subdued, while capital spending by Central Public Sector Enterprises tracked at 17 per cent of their FY27 budgeted target.
The report also highlighted continued progress under the Production Linked Incentive (PLI) scheme. It said investments across 14 PLI sectors reached about Rs 2.4 trillion by FY26, generating incremental production worth Rs 22.7 trillion.
Gross foreign direct investment also touched USD 100.9 billion on a 12-month trailing basis, while net FDI improved to a 25-month high of USD 11.9 billion, indicating improving investment trends.