Analysis-Private sector steps up as India's growth engine broadens

By Manoj Kumar and Shubham Batra

NEW DELHI, Sept 1(Reuters) - India's economy ‌is showing early signs that ​a long-awaited private ​investment revival is taking hold, broadening the growth engines and making it more resilient to global shocks.

Asia's third-biggest economy grew 7.8% in the April-June quarter, beating economists' forecasts for a 12th consecutive quarter. The stronger-than-expected expansion is helping shield an economy that remains heavily reliant on imported oil and is contending ‌with higher commodity prices, foreign portfolio outflows and a soft currency.

"Doomsayers were doomed and India bloomed…yet again!", Prime Minister Narendra Modi said in ⁠a post on X. The Modi government has come under pressure from weak jobs, particularly for the youth.

The bigger story beneath the headline GDP beat is that growth is no longer being driven primarily by consumption and ‌government spending. Years of public infrastructure spending are ‌beginning to draw private capital off the sidelines, with investment rising 11.9% in the April-June quarter.

Yet employment trends remain weak, as the economy's increasing tilt towards automation, semiconductors and data centres means each dollar of investment is generating fewer jobs than in past expansions.

"Barring COVID-period volatility, this is the strongest real investment print since late-2018 and reaffirms ​our view of improvement in corporate capex momentum," Citi analysts said in a note on Monday.

The share of gross fixed capital formation, or broadly investment in the economy, rose to 34.3% in the April-June quarter from 31.4% a year earlier, according to the National Statistics Office.

"Investments in railways, artificial intelligence and semiconductors have picked up, helping to support ⁠economic growth," said Saurabh Sanyal, secretary-general at India's leading industry chamber ASSOCHAM.

As factory utilisation approached 77% in the January-March quarter, private-sector investment gathered pace across autos, renewables and defence, analysts said, citing RBI estimates.

He said capital investment, driven largely ​by the private sector, increased by more than 5 trillion rupees ($52.7 billion) from a year earlier during the quarter.

FROM GOVERNMENT TO PRIVATE SECTOR

For much of the past two years, investment growth leaned heavily on government infrastructure spending, while tax cuts and state-level cash handouts helped ​underpin consumer demand.

Finance Minister Nirmala Sitharaman has proposed 12.2 trillion rupees ($133 billion) in infrastructure spending in ‌the current fiscal year, more than double the level of five years ago.

Public spending is starting to crowd in private investment, analysts and bankers say.

This is reflected in bank credit, which is growing at over 19% in the fortnight ended July 31, the fastest pace in a ⁠decade, while credit to industry rose 20%, according to Reserve Bank of India data.

Demand is being driven by large corporates, non-bank lenders and gold loans, Axis Bank CEO Amitabh Chaudhry told Reuters last month.

Even excluding these segments, demand for credit is strong, suggesting "there is a broad-based growth which you are seeing," he said.

That investment revival is being supported by resilient consumption, which grew 7.1% in the April-June quarter.

TECHNOLOGY, ⁠MANUFACTURING DRIVE NEXT PHASE

While spending on traditional infrastructure remains strong, India is increasingly seeking to channel investment into data centres, semiconductors and advanced manufacturing. Global technology giants including Google and Amazon have announced plans ​to invest more than $40 billion in Indian data centres over the next five years.

Recent developments in aerospace and defence underscore those ambitions, with Indian companies and state agencies unveiling indigenous rocket and aircraft-engine technologies.

Data analysed by Citi showed that listed Indian companies grew capital expenditure by 11% in the financial year ended March 2026, up from 8% previously.

The bank expects the investment recovery to sustain into fiscal 2027, ‌citing "demand visibility from FY26 stimulus, availability of ample funding, lower rates, healthy balance sheets and elevated capacity utilization" as supportive factors.

"There are several pointers to believe that the structural component is becoming stronger," said Rajeev Juneja, president of industry body PHDCCI. "Corporate balance sheets are ‌considerably healthier than they were during the investment slowdown of the previous decade."

The outlook is not without risks, however.

Elevated oil prices, geopolitical tensions and a weaker rupee could raise input costs, stoking inflation and keeping ⁠interest rates higher for longer.

"Even as GDP growth has held up well ‌thus far, some softening could be in order," HSBC ​economists said in a note.

They warned that slower public-sector capex, the effects of weak rainfall, fading support from tax cuts and tougher year-ago comparisons could temper growth over the rest of the year.

($1 = 94.8725 Indian rupees)

(Reporting by Manoj Kumar and Shubham Batra in New Delhi; Editing by Ira Dugal ‌and Shri Navaratnam)

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