India's Capex Cycle Set For Major Boost, Investments May Reach $ 2.2 Trillion By FY30: Morgan Stanley

India's capital expenditure (capex) cycle is expected to gather further momentum over the next few years, supported by rising private sector investments, sustained government spending on infrastructure and defence, and expanding investments across manufacturing and new-age industries.

According to a Morgan Stanley report, the country is entering a more durable investment cycle that could significantly boost economic growth and increase India's investment rate by the end of the decade.

What does the report project?

Morgan Stanley estimates that India's overall investments could increase 1.8 times over the next five years, reaching nearly USD 2.2 trillion by FY2030.

The report says, "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."

This implies that India could witness an additional USD 1 trillion in capital expenditure during the period, reflecting stronger investment activity across sectors.

Why is India's capex cycle expected to strengthen?

The report says the central government is likely to stick to its budgeted capital expenditure target of Rs 12.2 trillion, equivalent to around 3.2 per cent of GDP, while maintaining its focus on infrastructure development and defence spending.

At the same time, Morgan Stanley expects private sector investment to accelerate, helped by healthy domestic demand, supportive government policies and a gradual recovery in exports.

Together, these factors are expected to sustain investment momentum over the coming years.

Which sectors are expected to drive investments?

Morgan Stanley believes India is at the beginning of a sustained capex upcycle supported by four major investment themes.

These include energy security and the energy transition, defence, manufacturing supply chains including electronics and semiconductors, and investments in data centres and infrastructure.

The report notes that these diverse growth drivers should make the investment cycle more resilient over the medium term, reducing dependence on any single sector.

What do recent economic indicators suggest?

The report says high-frequency economic indicators for June remained resilient despite continued global uncertainty.

It adds that easing commodity prices and improving supply chains are expected to support both domestic demand and exports.

Investment activity also improved during the June quarter, with manufacturing, electricity and information technology services witnessing stronger project growth compared with the previous quarter.

How is government capital expenditure performing?

Morgan Stanley says the Centre has maintained a healthy pace of capital spending during the initial months of FY27.

According to the report, central government capital expenditure reached Rs 2.5 trillion during April-May FY27, accounting for around 20.5 per cent of the annual budget target and registering a 13.4 per cent year-on-year increase.

More than half of this spending, around 53.4 per cent, was directed towards roads and railways, underlining the government's continued emphasis on infrastructure creation.

However, the report notes that capital expenditure by state governments remained relatively subdued, while spending by Central Public Sector Enterprises stood at 17 per cent of their FY27 budget target.

What role is the PLI scheme playing?

The report highlights continued progress under the Production Linked Incentive (PLI) scheme, which aims to boost domestic manufacturing across key sectors.

According to Morgan Stanley, investments across 14 PLI sectors reached nearly Rs 2.4 trillion by FY26, resulting in incremental production worth Rs 22.7 trillion.

This suggests that policy incentives are translating into higher manufacturing output and fresh investments.

What does the FDI data indicate?

The report also points to improving foreign investment trends.

Gross foreign direct investment reached USD 100.9 billion on a trailing 12-month basis, while net FDI climbed to a 25-month high of USD 11.9 billion.

According to Morgan Stanley, these figures indicate improving investor confidence and reinforce expectations of a stronger investment cycle in the coming years.

(With inputs from ANI)